Must I file a 1040 schedule D?

Q: I have a total of $775 capital loss for the year, and no gain on any individual sale. Must I still file a 1040 schedule D? I would rather telefile. —Peter, Tewksbury

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: The IRS doesn't know if you made or lost money on the sale of a capital asset and, since they receive reports of such sales from brokers that they then match to your return, not reporting such a transaction is an invitation to unwanted scrutiny. In such a case, the IRS will count the proceeds as profit, with no offsetting cost, until and unless you document your costs. So, while it is something of a pain to prepare a Sch. D and file a paper return, you would do better to do that for this year, not to mention the tax savings from using the loss against your other income. Of course, if you meet the criteria, the IRS offers a free, on-line e-filing program in partnership with several software companies. You should be able to access it through www.irs.gov.