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Tax Tip 2: Review and
Organize your Documents by Jan/Feb:
Each tax season
begins about the same. Banks, brokerages and corporations are required to
report wages and income to the IRS. According to the IRS a sale within a
brokerage account is potentially income subject to taxation. This
means each taxable “Sell to Close” and “Short Sell to Open” is reported to
the IRS by your broker. It is up to each tax payer to prove their
actual taxable income and then pay the appropriate tax amount due.
There are standard
procedures that your broker uses at the end of each year to link all the
sales in your account with your tax id number (social security number).
When they have finished their reporting process; they will also send you a 1099
report confirming what they reported to the IRS. This is why
gathering all of your 1099s, W2s and other reports of income are
important.
Knowing the process
is similar each year, why start from scratch? Instead take a deep
breath and open last year’s tax return, then locate the list of accounts
that were reported on your tax return. Consider asking your tax
preparer to e-mail the list to you from last year. Then add to the
list any new accounts that were open during the tax year. Use the
list to track when you have received each 1099. Knowing what to
expect goes a long ways toward setting appropriate expectations and
avoiding oversights.
A
1099 typically shows the cost basis for trades (Buy to Open) during the
tax year but you will need prior year documents to find similar
information for older trades. In some cases you can find this on an older
statement or print it from the transaction history section of the brokers
web site. If all else fails, call the broker and ask for help
locating your opening trades.
Note:
Brokerages and Tax Professionals have more time for questions and research
projects at the start of the tax season than toward the end of the tax
season. Contact them as soon as possible with questions.
Action Step -
Print this page, keep it handing to track your 1099 documents.
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Financial Institution's Name |
Account # (last 4 digits) |
1099 Rec. |
Cost Basis |
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