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Recent legislation changes cost basis tax requirements

By Mark J. Muñoz on January 26, 2012
Categories: FINANCIAL PLANNING, TAXES

Since the firm’s inception, we have placed considerable focus on obtaining and maintaining the accuracy and integrity of our clients’ cost basis data. As an investment advisor, we believe that preserving this data is critical to our clients, their tax professionals, and the investment management process. Recent legislation has resulted in significant changes in cost basis tax requirements for account custodians, such as Charles Schwab & Co, Inc (Schwab). Custodians are now required to report cost basis and the corresponding gain or loss directly to the IRS in a phased approach:

  • Starting in the 2011 tax year, custodians will report cost basis to the IRS relating to the sale of equities purchased on or after January 1, 2011.
  • For the calendar year 2012, custodians are mandated to expand reporting to include sales of mutual funds, exchange-traded funds (ETFs), and dividend reinvestment plans (DRIPs) purchased on or after January 1, 2012.
  • For the 2013 tax year, the reporting will include the sale of fixed income securities purchased on or after January 1, 2013.

These changes will impact investors’ tax return filings with new forms and requirements. Schwab has provided resources regarding changes to their revised 1099 Composites: FAQsopens PDF file  regarding the new 1099 and a sample 1099 Compositeopens PDF file .

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