Securities to Report
Both organizations and individual investors trade a wide variety of financial securities with the intention of gaining returns upon these investments. Securities include exchanges involving:
- Debt securities bonds, banknotes, debentures, etc.)
- Equity (mutual funds, stock, commodities, etc.)
- Derivatives (options, forwards, futures, swaps, etc.)
Stock Price Index Over Time
The securities trading markets have appreciated substantially in recent times, making the scale of investments (and subsequent reporting) more important than ever.
When considering the returns derived from these various investments, organizations and individuals must be aware of the reporting obligations in the country in which those securities are traded. Organizations like the IRS have a wide variety of taxation requisites depending upon different investment situations, and understanding these regulations is critical to ethical trading and adherence to legalities.
Reporting Obligations
Capital Gains
Most commonly, reporting of investments will fall under the reporting of capital gains. Both organizations and individuals must report any and all capital gains within a given time period. These capital gains are profits derived from the sale of investments, which is to say that existing investments where capital is still tied in the underlying asset it not taxable (though it must be reported on the balance sheet for organizations as assets).
When profits from short term investments are derived in a taxation period for an organization, this profit is reported on the income statement and taxed accordingly. Capital gains taxes can differ based on the duration and type of investment made, but for the sake of this discussion it is enough to understand that an existing investment is an asset on the balance sheet and profit from the trade of an investment should be reported as profit (or loss) on the income statement.
Potential Reductions and Deferrals
As with most regulatory environments, it is not a one size fits all model. There are various situations where capital gains taxes can be reduced through understanding the legislation and reporting accurately and strategically. A few examples of potential reductions or deferrals in capital gains reporting include:
- In some countries, specific industry investments receive tax breaks to stimulate economic growth. For example, an investment in new green technologies is often a source of potential tax break, as it is beneficial to the broader economy and world at large.
- Retirement investments are often tax free (until withdrawn) to stimulate responsible saving and retirement planning. This allows companies to accumulate interest on what would've been taxable income until the capital is removed from the account.
- The sale of an asset at a loss is often a tax deductible, as are other capital losses.
- Donations of assets or capital to charity are tax deductible in most situations.
- Occasionally, the acquisition of certain assets will have the value reevaluated. In such situations, the difference between the original price and the new price may be a source of tax deduction.
While there are countless other small legislative items which may indicate tax implications on capital gains, this gives a reasonable overview of the types of considerations accountants make when considering capital gains.