If you sold mutual funds during the tax year and you’re wondering whether to file your federal income tax return using Form 1040 or Form 1040A, I’m here to clarify the rules and help you decide which form applies to your situation.
Table of Contents
What Are Form 1040 and Form 1040A?
Before diving into mutual funds, it’s important to understand the tax forms themselves.
- Form 1040 is the standard federal income tax form used by most taxpayers. It’s the most flexible form and allows reporting of a wide range of income types, deductions, and credits.
- Form 1040A was a simplified version of the 1040, used by taxpayers with more straightforward tax situations. It allowed fewer types of income and deductions.
Important: The IRS discontinued Form 1040A starting with the 2018 tax year. Today, taxpayers use Form 1040 or its streamlined versions (1040-SR for seniors or 1040-NR for nonresidents).
If you are asking about 1040 vs. 1040A, I assume you are referring to pre-2018 filing or comparing complexity levels.
Selling Mutual Funds and Tax Reporting
When you sell mutual fund shares, you trigger a capital gain or loss depending on the sale price relative to your cost basis.
- Capital gains are taxable profits.
- Capital losses can offset gains or reduce taxable income up to a limit.
You report these on Schedule D (Capital Gains and Losses) and Form 8949 (Sales and Other Dispositions of Capital Assets), which then feed into your main Form 1040.
Why Form 1040 and Not Form 1040A?
Form 1040A did not allow reporting capital gains and losses from investments such as mutual funds. You needed to file the full Form 1040 if you had:
- Capital gains or losses
- Income from self-employment, rental, or dividends
- Itemized deductions beyond standard amounts
Since selling mutual funds almost always requires you to report capital gains or losses, you cannot use Form 1040A to file your taxes.
You must file Form 1040, attach Schedule D and Form 8949, and report your capital gains and losses properly.
What Happens if You Don’t Report Capital Gains Correctly?
Failing to report gains from mutual fund sales can lead to:
- IRS penalties
- Interest on unpaid tax
- Increased audit risk
Mutual fund companies issue Form 1099-B, which reports your sales proceeds and cost basis to both you and the IRS, so matching these numbers is important.
Example: Reporting a Mutual Fund Sale
Suppose I bought mutual fund shares for $10,000 and sold them for $15,000 this year.
- Capital gain = $5,000
- On Form 8949, I report:
- Date acquired
- Date sold
- Sales proceeds: $15,000
- Cost basis: $10,000
- Gain: $5,000
- Schedule D summarizes gains and losses, showing the $5,000 gain.
- On Form 1040, the net capital gain enters Line 7 (for 2020 tax year) or Line 13 (more recent years).
This process requires Form 1040, not 1040A.
Summary Table: Filing Requirements After Selling Mutual Funds
| Filing Situation | Use Form 1040 or 1040A? | Additional Forms Needed |
|---|---|---|
| Sold mutual funds with capital gains/losses | Form 1040 only | Schedule D, Form 8949 |
| Only wages, standard deduction, no capital gains | 1040A (pre-2018 only) | None |
| Multiple income types, itemized deductions | Form 1040 | As applicable |
Final Thoughts
If you sold mutual funds and realized capital gains or losses, you must file Form 1040 along with Schedule D and Form 8949 to properly report your investment transactions.
Form 1040A is not an option for reporting investment sales, and since it’s discontinued anyway, focusing on Form 1040 is the right path.
