I received a letter from IRS telling me that I owe them $1500.00 from the securities that I own in the stock market. I hope I can explain this. I opened an account 2 years ago and invest $2000 in the stock market. I was buying and selling stocks online but I never earned any money and I lost most of it. The letter I received shows that I have $10.000 worth of stocks and they want me pay the tax out of it with the interests. This $10.000 is not the money that I earned over two years. It is the sales activity and if yoo add them up it comes to $10.000 and some change. I never earned money from the stocks why should I pay tax from something that I never earned. How can I fix this mistake. Please guide me on this matter I appreciate any help. Thanks.
PS. I never filed anything on my tax return as I lost money.
I believe that even if you lost money you are required to file a return to account for what stocks were bought and when they were sold. In filing a schedule D (Capital Gains and Losses) to your Form 1040, the length of time a stock is held determines the tax rate, assets held one year or less are taxed at a different rate than those held more than one year. The difference between the sale price times the number of share, and the purchase price times the number of share determines whether there was a loss, or a capital gain. You pay taxes on gains but usually report losses, because losses this year may be used to offset gains next year. If you haven't done that, remember that the stock brokerage would have reported the facts to both yourself AND the IRS at the end of each year. You will probably have to make an amended return to straighten that out. Good luck. And welcome to AnswerPool.
