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Cost Basis Reporting

| July 30, 2012

The Emergency Economic Stabilization Act of 2008 requires brokers to report cost basis and gain on securities to the Internal Revenue Service. This began in 2011 with the reporting of basis for equities purchased after 2010. It now expands for 2012 to include mutual funds purchased during 2012.It has been our experience that the brokerage firms are doing a very good job in properly calculating what can be a very complicated, as well as very important figure. This calculation is made more complex by some of the various transactions taking place in the area of stock equities; stock-splits, stock dividends, mergers and spin-offs. In general, the major firms clearly have the sophistication to properly handle these situations.However, it is a good idea for taxpayers to review these items prior to year-end. There is a method for correcting the brokerage reported basis/gain amounts on your tax return. Unfortunately, such correction will invariably attract IRS scrutiny – something we clearly want to avoid. Since most securities firms provide realized gain or loss detail with their client reports at least quarterly, an investor has an opportunity to review the amounts and request correction prior to the reports being submitted to the IRS.Another area requiring investor attention concerns the receipt of investments by gift or inheritance. When these are included in your investment account, the brokerage firm will not have purchase information and the basis information will need to be provided to them. The rules for calculating basis of investments received through gift or inheritance are complicated and will generally need to be obtained from the estate or donor. Ready, Willing and Free Consultation – If you have questions or concerns about any area of taxation, please give us a call. We never charge a fee for initial consultation and also are happy to provide free planning and advice to all our clients. You may contact us directly at 903-882-9261 or by email at or