Posted by Halverson & Company | 0 Comments »
The Internal Revenue Service (“IRS”) now requires additional reporting related to the sale of capital assets (stocks, bonds, etc.). The 2011 tax return filing season brought about several changes that you may have noticed.
Brokers are now required to report the cost basis, gain or loss, and certain disallowed wash sale transactions to the IRS in addition to the gross proceeds for covered capital transactions.
The added reporting requirement has created further complexity in the preparation of tax reporting documents and as such, brokers are now allowed more time to furnish tax reporting forms (1099-B) to their clients.
Taxpayers are now required to file Form 8949, Sales and Other Dispositions of Capital Assets, in addition to Schedule D if they sold capital assets during the year.
The Energy Improvement and Extension Act of 2008 mandates that every broker required to file a return with the IRS must report each customer’s adjusted basis in addition to reporting their gross proceeds. This is only required for covered transactions. Covered transactions include:
Individual stock purchases after January 1, 2011
Mutual fund shares purchased after January 1, 2012
Bonds, options and other securities purchased after January 1, 2013 or a later date determined by the Secretary of the Treasury
Noncovered securities are securities acquired before these dates. Even though your broker was not required to report your cost basis in a noncovered security, many brokers still provided this information to you on the same form to the extent the information was available. There are several methods that can be used to calculate your gains and losses. We will discuss these methods and the advantages and disadvantages of each in a later BLOG post. Disallowed losses from wash sales transactions may be reportable by your broker as well. A wash sale occurs when you sell a security at a loss and purchase a substantially identical investment within 30 days before and 30 days after you take your loss.
Many of you may have received your tax forms from your brokers later than in previous years. In connection with the additional reporting requirements (in particular the wash sale reporting requirements), brokers are now required to provide Form 1099-B to their clients by February 15th instead of January 31st. Although your broker may have complied with this deadline, in many cases several “CORRECTED” versions of Form 1099-B were received by broker clients as late as March and April of this year. It seems like brokers still have some significant bugs to work out in their compliance with the new IRS reporting requirements.
Form 8949 was designed for taxpayers to report both the data already reported by your broker and additional data that was not provided by your broker. This form reports capital transactions in six different categories:
Short-term capital gains and losses (assets held one year or less)
Short-term transactions reported on Form 1099-B with basis reported to the IRS
Short-term transactions reported on Form 1099-B but basis not reported to the IRS
Short-term transactions for which you cannot check box A or B
Long-term capital gains and losses (assets held more than one year)
Long-term transactions reported on Form 1099-B with basis reported to the IRS
Long-term transactions reported on Form 1099-B but basis not reported to the IRS
Long-term transactions for which you cannot check box A or B
Form 8949 replaces Schedule D-1, but it does not replace Schedule D. The information reported on Form 8949 is presented in a summary format on Schedule D. It is on Schedule D that your prior year capital loss carryover amounts are considered as an offset to your current year gains.
While we believe brokerage houses will improve in their timeliness and accuracy of reporting over the next few years, we still expect to see complications as the requirements for reporting are phased in. Unfortunately, the dreaded CORRECTED 1099-B may be commonplace for the next several years.