Investment Apps and Taxes: What You Need to Know

How capital gains and losses are taxed

From bull runs through crypto crashes, you expect your assets to change in price—and you hope that when you sell, you’ll profit. Both capital gains and losses need to be reported to the IRS, but the impact they can have on your return differs.

The way a gain is taxed is based on how long you owned the asset. If you owned it for at least 1 year and 1 day, it is considered a long-term asset and subject to lower “capital gains” tax rates. If you owned it for less than 1 year and 1 day, any gain is taxed at your regular income tax rates.

Losses can be used to offset gains. We will dive deeper into how you can report losses—and even carry them over across years—in the next section.

5 facts to know about investing apps and taxes

1. You must report the money you make and pay capital gains tax on profits.

You pay taxes if you make more money than you lose on your investment sales for the year. Subtract your losses from your profits to get your capital gains. Report this amount on both your federal and state taxes. It’s a good idea to put some money aside during the year to cover your capital gains tax.

Calculating your capital gains

2. Losses may reduce your taxes

Had a bad year investing? You may be able to deduct your “capital losses” on your tax return, which can reduce your taxes for the year. There are some tricky rules here, so proceed carefully. If you’re not completely sure what you’re doing with taxes on investments , ask a tax professional.

3. Good news! You can use tax losses in any year (following some rules, of course).

Capital losses always offset your capital gains. If you have more losses than gains, you can deduct up to $3,000 on your return for the year. Have more than $3,000 in losses? You can carry it over to next year. Capital losses NEVER expire. You'll need to include Schedule D and Form 8949 with your return.

How to claim capital losses over time

Use your capital losses in future years to help reduce your taxes. Our example assumes you have no gains to claim.

4. Know your tax basis for each stock.

This is the most complicated bit to know. “Tax basis” is the amount you paid for an investment. You use this number to figure out how much you gain or lose when you sell that investment. The IRS will know your tax basis so you should, too, or you risk getting a bill for taxes and penalties plus interest.

Example of calculating a capital gain

Example of  calculating a capital loss

5. More good news! Get ahead on tax forms: most apps keep very good records for you.

Check out an app’s capabilities for tax reporting before deciding which one to use. This feature can make filing taxes much easier. Remember: it’s your responsibility to provide proof if your records don’t agree with the investment company’s.

Keep your transaction records up to date

When you sell or exchange stocks, bonds, or crypto and withdraw money from your mutual funds, you should receive Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to report your transactions during the year. You should report this information on Form 8949, Sales and Other Dispositions of Capital Assets, then on Schedule D (Form 1040), Capital Gains and Losses when filing your tax return. 

Beginning January 1, 2025, the new form 1099-DA, Digital Proceeds Form Broker Transactions, will be used to report Digital Asset transactions. 

Just as investing opens new possibilities for what you do with your money, it also expands your tax-filing responsibilities. Keep accurate records every step of the way. Accurately documenting and reporting gains and losses will help. 

The good news is that Jackson Hewitt is on top of the latest tax rules and regulations. Our Tax Pros can help you understand how to report your investment gains and losses.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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