As if tax preparation were not already enough of a headache, it can be especially complicated when trying to figure out how to report taxable gains and losses on stocks. While this can easily be facilitated by your stock advisor or investment firm, this information has been notoriously difficult to obtain. Most financial statements have lacked this key piece of information, causing undue hardship and aggravation from investors seeking to file their own income tax returns.
Federal Cost Basis Legislation requires that investment firms provide the necessary information on your statements. That way, you no longer have to look at the purchase and sale dates to determine whether the sale counts as a short term or long term asset. This is important, since short term capital gains have a much higher tax rate than long term capital gains.
Instead of having to figure this out, it will already be calculated (as it should have been all along). Most investment firms will automatically calculate your stock sales as First in, First Out. That means that it will be assumed that whenever you sell stock, you begin with the oldest shares of that stock that you own. You can of course dictate a different calculation if you want. You simply have to make sure that your broker or investment firm knows your preference.
This information is required to be provided to you on Form 1099. All investment firms must begin providing this information to you starting in 2012. That means, it will begin including stock trading activity in which the stock was initially purchased in 2011 or later. Of course, any firm that chooses to provide this information sooner is certainly welcome and able to comply ahead of the 2012 deadline.
Most investment firms chose to withhold this information due to concerns about tax advice liability. Now, they all have to comply and you for once are the winner with this new legislation. This also means that we can finally buy or sell stocks based more on profit and less on having to worry about keeping up with buy and sell dates!
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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