Mutual Funds:

Does Your Client Still have to File Schedule D?

The Taxpayer Relief Act of 1997 made many things easier on the taxpayer by reducing capital gains rate and repealing the marriage tax penalty, but it also made life harder for the investors by doubling the amount of lines that needed to be filled out on Schedule D, Reporting of Capital Gains and Losses.

Here is the good news. After a couple of years of chaotic results and observing the altitude of the taxpayer, most of whom either did not know about filing Schedule D or saw the 54 lines that needed to filled out and backed off, the IRS decided to give them a break. Investors who only have their capital gain distribution to report, but no other gains or losses, can use the front of Form 1040, only 15 lines, instead of the Schedule D.

Regular income tax on earnings and profits is 41% when your client does not file the right form for taxes. The IRS will be more than happy to tax your client at this rate and get as much money from them as possible. It is easy for your client to outsmart the IRS by paying a little bit of attention to what form your client needs to fill out. They will therefore be liable to pay the current capital gains rate of 20% in taxes on their earnings and profits.