Final answer:
Individuals use Schedule D (Form 1040) to report capital gains and losses, impacting the amount of tax owed according to a progressive tax schedule based on their taxable income.
Step-by-step explanation:
Individuals report their capital gains and losses on Schedule D (Form 1040) or for Form 1040-SR when they file their annual tax returns with the Internal Revenue Service (IRS).
This form is used to summarize the capital gains and capital losses from transactions involving capital assets, such as stocks, bonds, and real estate, among other things.
The net result calculated on Schedule D will then dictate how much of the gains are taxable or the amount of the loss that can be deducted against other income.
The tax owed calculated from the capital gains and losses may be affected by the overall income tax schedule that applies to an individual, as it considers the person's taxable income.
Progressive tax brackets mean higher levels of income are taxed at higher rates.
Correctly reporting on Schedule D ensures compliance with tax laws and can have a significant impact on the total tax an individual owes for the year.