So you sold some stock this year…

The sale of stock or mutual fund shares can be quite tricky to report on your tax return. The gross amount of your sale and the sale date are usually provided to you on a 1099-B from your broker or sales agent. The form may also include a cost basis, which may or may not be correct.  The IRS has the gross amount of your sale in their computer. We need to match that number and provide an accurate cost basis so you pay income tax only on your profit. We also need to report the date you bought the shares and the date you sold them.

Your cost basis includes the original amount you paid for your shares plus any commissions of fees paid on the purchase or sale. This information was provided to you when you purchased your shares. If you had your dividends reinvested, we need those amounts as well. This information is provided to you on a monthly, quarterly or annual report from your broker or fund company. If you cannot locate this information, you can request a “history of my account” from your broker or the “shareholder relations” department of the company. This may take a few weeks to obtain, and they may charge a fee for the service.

Mutual fund shares or book entry shares of stocks are deemed to be sold on a “first in, first out” basis. This means your oldest shares will be sold first, unless you identify in writing which shares you want sold. Selling more expensive shares reduces your profit and therefore your income tax.

Calculating a cost basis with reinvested dividends and capital gain distributions is very labor intensive, and we do charge for this service. We are very experienced, very fast, and we utilize a special computer program to keep your cost as low as possible. We also can research stock history over the internet. If you know that we will need to do this, we strongly encourage you to bring in your information before tax season; we can give you a price break during our slower times.

Because the IRS has each stock or mutual fund transaction listed separately in their computer, we list each transaction separately on your tax return (“matching”). This reduces “inquiry/audit” letters from the IRS. Obviously, listing each transaction takes time, so a tax return with 30 stock transactions is going to have a higher fee than a tax return with 2. We also have to separate stock or mutual fund sales by short-term and long-term shares, and whether cost basis was reported to the IRS, so 1 sale could possibly need to be split into 4 reportable transactions on a tax return.