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Business & farm
If an investment is held for one year or less, it's SHORT-TERM
If an investment is held for more than one year it's LONG-TERM
Short-term gain is usually taxed higher than Long-term gains.
Basis is your value, usually what you paid for something.
If you buy stock for $2, and sell it for $3, your basis is 2, selling proceeds is 3 and gain is 1.
If you owned the stock for more than one year, it is a one dollar Long-term gain.
If you owned it for just one year (or less) it is a one dollar Short-term gain.
Sometimes investments are bought and sold through a Broker and usually the Broker tells the IRS EVERYTHING, what you paid when you bought it, what you sold it for, how long you owned it, and how much you profited from selling it.
Sometimes the Broker only reports SOME information to the IRS, but not all.
Sometimes you might buy an investment without using a Broker and the IRS is only told about it when you file your tax return.
COVERED means the IRS was told what you paid to purchase the investment (your basis)
NON-COVERED means the IRS was not told what you paid to purchase the investment
Not-Reported means the transaction was only reported by the Brokerage to the IRS as Long-term or Short-term
Those are the two components
(How long did you own the investment)
Short-term OR Long-term
(How was it already reported to the IRS)
Covered- everything was reported
Non-Covered- partially reported, missing what you paid to buy it
Not-reported- nothing reported
From these two choices are six possibilities for how the Broker reported the transaction:
SHORT-TERM and
Covered- everything was reported
Non-Covered- partially reported, missing what you paid to buy it
Not-reported- nothing reported besides how long you held it
OR
LONG-TERM and
Covered- everything was reported
Non-Covered- partially reported, missing what you paid to buy it
Not-reported- nothing reported besides how long you held it
as well as the seventh option (BOX X) where NOT A THING WAS REPORTED TO THE IRS, (not even if it was Short-term or Long-term)
the Broker is only reporting a transaction to you
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