My Online Bookkeeper Blog

Beginning with the 2011 tax return, reporting stock transactions has become significantly more complicated because of the new requirement for brokerage firms to track the purchase price of stocks acquired after 2010 and subsequent years and to include that information on the information-reporting document 1099-B.

For several years now, the IRS has required brokerage firms to report the gross proceeds from the sale of stocks and other securities on the Form 1099-B. But just knowing the proceeds from a security sale does not allow the IRS to verify the profit or loss reported by the taxpayer. So beginning with 2011 purchase transactions, brokers are required to track the price paid for the securities and include that information on the 1099-B when that particular security is subsequently sold.

So that the IRS can use the new data to verify taxpayer profit or loss transactions attributable to purchases where the cost information is included with the 1099-B, the year’s transactions must now be broken down into six categories (the last two categories listed do not apply to stock transactions but may apply to sales of other capital assets):

Long-term sales where the broker IS reporting the cost of the security
Short-term sales where the broker IS reporting the cost of the security
Long-term sales where the broker IS NOT reporting the cost of the security
Short-term sales where the broker IS NOT reporting the cost of the security
Long-term sales for which no 1099-B is issued
Short-term sales for which no 1099-B is issued

The IRS has provided a new form 8949 for segregating the transactions within each of these categories. A separate form 8949 must be used for category so the IRS can match what the taxpayer reported as profit/loss for transactions where the broker reported the profit/loss.

Prior to 2011 it was common practice to summarize a taxpayers long-term and short term transactions and make a single long-term and single short-term entry on the old version of Schedule D saying “see attached” in description block and including the broker’s statement of long-term and short-term gains and losses with the return filing. Under this new regimen this is longer possible because brokerage firms are not segregating the transactions into the required categories in reports they provided to their clients.

This has created a reporting nightmare for taxpayers with significant numbers of transactions during the year (typically managed accounts) where the transactions can run in the hundreds. These taxpayers or their tax preparer are faced with entering every transaction on the tax return in order to accomplish the required segregation, which is time consuming and expensive.

Although not a perfect solution, many tax software products will import stock transactions from a spreadsheet and most brokerage firms will provide a spreadsheet of the transactions upon request. Once loaded each transaction coded as to whether the 1099-B included the cost basis or not. Most brokerage accounts use the term “covered” to designate transaction where they report basis and “uncovered” where they didn’t.

If all that is not enough, the reporting process is complicated where the securities traded were acquired by gift or inheritance. Special adjustments are also required for wash sales and when sales can

be attributed to a prior purchase of the same security.

There is little chance the IRS will change the new reporting requirement since they feel a significant number of taxpayers overstate the tax basis of their sales and this this new reporting requirement was designed to counter that practice. So, hopefully, the brokerage firms will come to realize the needs of their clients and adjust their reporting to simplify the process for their clients.

Now that the IRS has profit or loss matching capabilities, it is important to correctly report the transactions as the IRS expects to see them. Failure to do so could lead to correspondence audits or even face-to-face audits.

A regular form of fundraising by charitable organizations consists of sales or auctions of property or services at a price in excess of value. These are referred to as “quid pro quo” contributions or dual payments made that consist partly of a charitable gift and partly of consideration for goods or services provided to the donor.

Quid pro quo contributions typically include the purchase of tickets for sightseeing tours, all-expense-paid trips, theatrical or concert performances, books or subscriptions to magazines, stationery, candy, etc., and are sold with a generous mark-up that is designed to help the charity in performing its functions. In these cases, the charitable deduction is the excess of the payment over the value received by the purchaser-contributor. For instance, when tickets to a show are purchased from a charity at a price in excess of the normal admission charge, the excess over the latter (plus tax) is a charitable contribution.

Determining and documenting the amount of the purchase that represents the charitable portion is the key to being able to take a charitable tax deduction for quid pro quo purchases. Tax law requires charitable organizations that receive a quid pro quo contribution in excess of $75 to provide a written statement, in connection with soliciting or receiving the contribution, that informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the amount of the purchase that is in excess of the value of the property or service purchased and a good-faith estimate of the value of the good or services purchased.

Example #1 – A taxpayer purchases a cookbook from a charity for $100. The charity provides the taxpayer with a good faith estimate of $20 for the value of the book in a written disclosure statement. Thus, the taxpayer’s charitable deduction is $80 ($100 minus the $20 value of the book).

Example #2 – A taxpayer attends a charity auction. The charity provides a catalog of the items for auction and a good-faith estimate of the value of each item. The taxpayer is the successful bidder for a vase viagra cheap valued at $100 in the catalog, for which the taxpayer bid and paid $500. The taxpayer’s charitable deduction is $400 ($500 minus the good-faith valuation of $100).

Example #3 – A taxpayer pays $40 to see a special showing of a movie for the benefit of a qualified charity. The ticket read “Contribution $40”. If the regular price for the movie is $10, the contribution would be $30 ($40 minus the regular $10 ticket price).

**Disclaimer – Informational purposes and may not be appropriate for your situation etc. need to discuss with a CPA before acting on any information in this blog.

The IRS as part of its “Fresh Start” initiative to help struggling taxpayers is making installment agreements available to more people. The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.
Effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.
Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.
Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with financial statements. Taxpayers may also pay down their balance due to $50,000 or less to take advantage of streamlined payment option.
An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest order viagra continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.