Capital Gains

Capital gains are earnings on investments in excess of the cost basis or purchase price plus transaction fees. ‘Capital gains‘ is a commonly used term in stock transactions. This information is reported on Schedule D of the taxpayer’s return.

Railroad Fund – Status on 01/31/2020

During the last 30 days, the fund held 13.52375 shares (original investment of $2,500) and sold them on 01/17/2020 at 9:40 AM when the price in the market hit the target under the value investment principle at $207.17.  The value investing principle (simply stated) required the share price to hit the prior peak price which was $206.46.  However, on that morning, the share price instantly jumped past $206.46 to $207.17 triggering the sale of the stock.  The gain on the sale net of costs of $1.00 per share to buy and $1.00 per share to sell was $288.19.  The stock was purchased on 10/23/19 at $183.86.

Basis for Tax Purposes

Basis for Tax Purposes

Basis is a term used in computing gains and losses on the disposition of an asset. For any business owner or individual taxpayer it is important to understand what the Internal Revenue Service (IRS) is really seeking. What is your tax basis in an asset? 

At-Risk Rules – An Elementary Understanding

At-Risk Rules

Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.

Realized and Unrealized Gains or Losses

Realized and Unrealized Gains

When a product or investment is sold, the seller must realize a gain or loss from the transaction. The actual sale or transaction will trigger the gain or loss realized.  In effect, the receipt of cash sets the threshold for a ‘REALIZED’ amount. Unrealized gains or losses are potential i.e. on paper transactions.

Passive Income

Passive Income

Passive income is a form of earning money without materially participating in the activity from which the income is derived. There are two definitions for the reader to understand. There is the common business definition and the tax code definition. 

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