Can someone explain Capital Gains to me?

[mommyswenn]

It's tax time!

How do I figure out capital gains? Dh got an email from HR saying that we are responsible for calculating and reporting any capital gains/losses, but I don't have the first clue...

Dh has stock options through work. They were given to him for performance bonuses, etc. They vest at different times, the first bunch vested in November, and we sold them.

I can't remember the exact figures, but it went something like this:

Strike price was $50.00, we sold at $70.00, so we netted $20.00 per share, less taxes. I'm pretty sure we were taxed on that, too -- ie. if we had 200 shares, we didn't get $4000.00 for them.

Dh also has unvested savings plans through work, which we've withdrawn from in the past. But we got a T-4 that covers those withdrawals. They're all stocks though, so I have no idea what the difference is... sigh.

We are still waiting for a T-3 from the investment company, which I believe relates to the unvested plan. BUT we've never had a T-3 before, so I don't know what exactly it covers.

The only other thing I know is that dh had to sign a direction stating that he wanted to sell the stocks that had vested, BUT he sent that into HR, not to the investment company. When we've taken stuff out of/moved it around in the unvested savings plan, we do it direct with the investment company.

My head is spinning...

Oh, another thing -- I've used Quick Tax for the last two years, and plan to again this year. I've used Standard in the past, but on the Staples website the description of Quick Tax Platinum says it covers stock options, etc... so should I get that version this year? It's $20.00 more than the standard, but if someone tells me that it will do the capital gains calculations for me I will kiss them! LOL!

Thanks for your help...

[lucyem]

Talk to an accountant. You have a lot going on. You also should discuss future selling of these types of stocks too. For example if some can be sold in November, for tax reasons you might want to wait until January 1st.

[ChattyCat]

Yep. Once you start getting into investment accounts that don't have to do with retirement or college (401K, IRA, Roths, 529, etc), I think it's very advisable to hire an accountant. Find someone you like (an actual person not a place like H&R Block), and then you can stick with them for years or decades, and you don't have to explain everything every year. This is especially helpful, when you're carrying losses and such.

[SusannahM]

We've had investment accounts and stock options for about 8 years now. Turbo Tax walks you through stock options that are from employers, I would reccommend getting a copy of that. There's also lots of good info online and I haven't seen any bad information on it whenever I've looked (it was always consistent with what I've seen in Turbo Tax and in the class I took from my employer about it). So, just googling will explain a lot of it to you.

[Novella]

I'll take a poke at part of this. . .

Originally Posted by mommyswenn

How do I figure out capital gains?

Capital gains are when you buy something and sell it later for a higher price. Consider this example:

Buy 10 shares of ABC stock at $25 each ($250). Hold it 6 years, each year of which you earn a dividend of $0.96 per share (so total dividends of $9.60 annually). At the end of 6 years you:

a) Sell your 10 shares for $25 each ($250 out, $250 in = $0). There is no capital gain to report. You are flat on the deal. The dividends you earned along the way don't figure into it b/c you reported them separately as you went along.

b) Sell your 10 shares for $32 each ($250 out, $320 in = $70 to your benefit). You have a capital gain of $70 to report to CRA. (Dividends were reported and taxed in earlier years, just as mentioned above).

c) Sell your 10 shares for $21 each ($250 out, $210 in = $40 down). You have a capital loss to report to CRA. (That you made money through the dividends also does not affect your capital loss b/c just as above, the dividends were taxed separately).

No software will be able to calculate a capital gain/loss for you unless you can feed it the purchase price of the investment and the selling price of the investment. After that, it's simple math. Unfortunately, the stumbling block can sometimes be digging up the paperwork to figure out what you purchased the investment at! For example, a house that is not your primary residence will incur a capital gain/loss when sold. "What the heck did I pay for that place back in 1974?!" It takes a little more care if you have bought shares over time at many different prices and then you are trying to figure out what your average is. I think this is one way that the tax software can be helpful, but again, it's not unmanageable.

Originally Posted by mommyswenn

I'm pretty sure we were taxed on that, too -- ie. if we had 200 shares, we didn't get $4000.00 for them.

Your profit was likely subject to withholding tax. Think if it like a "payroll advance" to the federal government. The government is anxious to get their payment. They won't know until tax time exactly how much you owe them, due to Canada's progressive income tax brackets. But they take a stab at it and collect some money now (just like your own payroll deductions of income tax are made). Then at tax time, it's an adjustment in their favour or yours once the true personal tax rate has been calculated.

Originally Posted by mommyswenn

Dh also has unvested savings plans through work, which we've withdrawn from in the past.

This might be showing the limits of my competence, but how were you able to withdraw from unvested savings?

Usually, "vesting" refers to the point at which the funds belong to the individual and would not get returned to the company if, typically, your husband ceased to be their employee. As such, you don't usually have control over unvested funds, because although they are credited to an account in your name, they aren't fully yours until vested.

If you are expecting a T3, then the investment must be held through an inter vivos trust (since it sounds like your DH is alive, and all! )

You might want to refer to:
http://www.cra-arc.gc.ca/tax/trusts/menu-e.html

I have found a lot of the CRA online information to be excellent. And I also can't say enough good things about the very helpful agents I've dealt with by phone.

I did our taxes for years until my husband changed jobs and got into a considerably more complex tax situation. I wouldn't necessarily recommend that you need to hire an accountant. Programs like QuickTax and Ufile cover a lot of varied, yet normal, tax situations. Sounds like you are within that realm. Between the software's help files, and online reading or phone calls to CRA, I'm sure you'll be fine.

If you have any T-slips left over at the end of filing, you've overlooked something!

[SusannahM]

Novella, employee stock options are a bit different than normal capital gains, though, and Turbo Tax really does hold your hand through them. They're reported on Schedule D and/or as regular income (depends on how long you held) them, and it walks you through it. The discount of the options (or employee stock purchase plan) is counted as income and usually shows up on your W2. Let me see if I can find a good link about it, since I know there are several....

[SusannahM]

Okay, this link explains employee stock options and employee stock purchase plans well.

http://turbotax.intuit.com/tax-tools...rbotax/article

[mommyswenn]

You guys are awesome! Thank you so much!

Can you get/use TurboTax in Canada? Or would QuickTax be the Canadian equivalent? Looking at the online descriptions of the various QuickTax programs available, I think there is one that covers what we need (it specifically refers to stock options).

I'll definitely check out the posted links, too.

Now I just need to figure out why I'm the one who ends up doing our taxes, when it's all dh's fault that we have to deal with stock options and the like.

[SusannahM]

You're in Canada

Well, then my advice should probably just be ignored.

[Novella]

Originally Posted by mommyswenn

Can you get/use TurboTax in Canada?

I don't think so. Both TurboTax and QuickTax are Intuit programs. As far as I know, TurboTax is their American version and QuickTax is the Canadian side.