Stock Sales and Capital Gains Reporting
Selling stock can generate significant gains — and equally significant tax consequences. Whether you sold shares from a brokerage account, exercised stock options, or liquidated investments to rebalance your portfolio, capital gains reporting is required and errors are common.
For California taxpayers, the impact can be especially costly.
How Capital Gains Are Taxed
When you sell stock, the difference between your sale price and your cost basis determines your gain or loss. Capital gains fall into two categories:
Short-term gains for assets held one year or less, taxed at ordinary income rates
Long-term gains for assets held more than one year, taxed at preferential federal rates
Accurate reporting depends on knowing your purchase dates, cost basis, and sale proceeds.
California’s Treatment of Capital Gains
Unlike federal law, California does not provide preferential rates for long-term capital gains. All capital gains are taxed as ordinary income at California’s marginal rates.
This often surprises taxpayers who correctly plan for federal taxes but underestimate their California liability.
Common Reporting Issues
Stock sales frequently trigger tax notices due to:
Missing or incorrect cost basis
Wash sale adjustments
Transfers between brokerages
Employer stock compensation misreporting
Relying on incomplete brokerage summaries
The IRS receives copies of brokerage reports, and mismatches can generate automated notices.
Stock Compensation Adds Complexity
Equity compensation such as:
Restricted Stock Units (RSUs)
Incentive Stock Options (ISOs)
Nonqualified Stock Options (NSOs)
require special handling. Withholding, vesting schedules, and alternative minimum tax (AMT) exposure can all affect how gains are taxed and reported.
Why Accurate Reporting Matters
Errors in capital gains reporting can result in:
IRS CP2000 notices
California FTB assessments
Penalties and interest
Amended returns years later
Even small discrepancies can trigger correspondence.
How All California Accountancy Can Help
At All California Accountancy, we help clients:
Reconcile brokerage and equity compensation reports
Correct cost basis errors
Plan investment sales tax-efficiently
Respond to IRS and FTB notices
Handle complex stock compensation reporting
Capital gains reporting doesn’t have to be stressful — but it does require precision.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.