How to report selling stock short on income tax return


Q: I sold short 300 shares of General Motors last September. I have not yet closed out the position by buying back the shares. This was the first time I ever sold stock short and do not know how to report it on my income tax.

A: Anyone who sold stock short last year will receive Form 1099-B from the brokerage firm that handled the transaction. Form 1099-B will indicate that you sold 300 shares of GM so you must report it on IRS Schedule D when you file your taxes. However, since you have not yet completed the other side of the transaction in that you have not bought back 300 shares, you need to file an accompanying explanation of the incomplete short sale.

For those of you unfamiliar with short sales, a brief explanation is in order: A short sale is the reverse of a typical investment. Instead of buying stock and hoping it goes up in order to sell it for a profit, a short seller sells borrowed stock first and hopes it goes down so he can buy it back cheaper to complete the position.

Q: What are the rules regarding distributions on IRA accounts? I will reach age 70 1/2 on June 30. Do I have to take a distribution this year?

A: Once you reach age 70 1/2 , you are required to take distributions each year by Dec. 31 of each year. However, the distribution for the year in which you reach age 70 1/2 may be deferred until the following April 1. However, that means that if you defer the 1991 distribution until April of 1992, you will be taking two distributions in that year. You will have to take your 1992 distribution by Dec. 31 of that year.

If you do not take the required distribution for any year, you will be subject to an IRS penalty equal to 50 percent of the missed distribution.

Q: What is the excess distribution penalty for an IRA and do I need to worry about it? I am about to take a lump-sum distribution from my IRA of close to $200,000 to buy a retirement home.

A: The excess distribution penalty refers to a penalty of 15 percent that the IRS imposes on retirement plan distributions of more than $150,000 in one year. That would include distributions from all of your retirement programs. However, lump-sum distributions are treated differently and have a higher threshold of $750,000 before the excess distribution penalty tax kicks in.

Send questions to Karen Lazarovic, Columbia Features Inc., PO Box 1957, New Smyrna Beach, Fla. 32170.

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