The Reporting of Sales of Securities Just Got a Little Easier

Beginning last year, investment firms had to begin reporting to the Internal Revenue Service the “cost basis” of the sale of certain assets sold by their clients. Basically, cost basis refers to the price at which you bought a security. However the calculation can get complicated, especially if you reinvested your dividends and capital gains distributions, or if you bought two separate lots of the same stock for different prices. Cost basis is the starting point for which you purchased a security.

In order to keep taxpayers honest, the Internal Revenue Service required firms to begin reporting your cost basis to them as well as the sale price of your securities. Securities firms must keep track of your basis for any sales of stocks bought on or after January 1, 2011. For mutual funds, exchange-traded funds, and dividend replacement plans, the requirement applies to purchases since the start of 2012. Reporting for individual bonds-as opposed to bond funds-begins in 2014.

It is important to note that even if your brokerage firm is telling you the cost basis of an asset after the sale, it may not be telling the IRS. The way to tell is if Box 6b of the Form-1099B form is checked. If it is then the firm is reporting the cost basis.

You need to be on the lookout for mistakes that your investment firm may be making. For example, some Form 1099-B’s don’t match trading logs, especially for frequent traders. Make sure that if there is a problem that you report it to your financial institution.

Reporting security sales has always been a challenge. At least now you might have some help.

For more information visit www.smalleynco.com

If you have any questions you can email Craig W. Smalley E.A.

Author of the books: It Starts With an Idea – Tax Tips for Small Businesses, The Ultimate Real Estate Investor Tax Guide, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax, The Complete Guide to the Affordable Care Act’s Tax Provisions, The Complete Guide to Retirement Plans for Small Businesses, The Complete Guide to Estate, Gift and Trust Taxation, The Complete Guide to Hiring an Accountant, The Complete Guide to Subchapter S-Corporations,, and Free Money. All available exclusively on Kindle