Last October the Internal Revenue Service (IRS) released a new version of the annual tax forms investors receive from their brokers, called the 1099-B. While the new version will require less effort from investors when filing their taxes, it could also curtail their expected profits.
Previously, brokers were only required to report on the 1099-B certain information relating to the sale of investments, such as the date of the sale and the amount of the sale proceeds, and it was the investors responsibility to figure out how much they paid for stocks that were sold. This made it extremely difficult for many investors, as they were responsible for keeping track of and reporting the cost basis on their tax return.
That changes this year due to the Emergency Economic Stabilization Act of 2008, which shifts the responsibility to the brokers to file the new 1099-B form which will include the cost basis. In addition the expanded form will also report the gain or loss of each transaction and whether or not the transaction was short term or long term.
While investors are pleased that these new rules will make their lives simpler, there are many people that wish these changes weren’t taking effect. Previously an investor had some flexibility in choosing a method for establishing the cost basis of stock that were sold if they had acquired multiple shares of the same stock at different times and prices. In essence, the investor could choose to identify the shares being sold as the ones that provided the optimal tax result. Thus, an investor could effectively decrease a taxable gain or increase a loss. Under the new IRS rules, the investor will no longer be able to make that choice.
Many investors might assume that since it is now the broker’s responsibility to maintain their records they no longer need to track their stock transactions but I think that would be naïve. It’s now more important than ever to keep good records to make sure what your broker tells the IRS is correct. I suggest that you continue to retain monthly statements, year-end reports, and trade confirmations, and make sure to monitor them closely.
What do you think? Are you pleased with these new changes for reporting stock sales? Join the discussion at TheStockEnthusiast.com!
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