As we continue our discussion of cost basis reporting, it is important to understand some of the terms you will encounter. Here are some of them:
1099-B Form
A form you receive from your broker at tax time each
year that reports capital gains information on your stock sales.
Brokers also provide a copy of the form to the IRS. The information you
report on your investment club taxes needs to match this form or you
need to have a valid reason why the brokers information is incorrect.
Adjusted Cost Basis
Your initial basis in a stock investment is the original price
you paid plus any commissions and fees directly related to the purchase.
Over the course of the time you own it, its basis can continue
to be adjusted due to the tax impact of events like wash sales and
corporate actions such as stock splits, mergers, spinoffs and stock
dividends.
In addition, sometimes part of the distributions you receive from
an investment get reclassified as a return of capital rather than
dividends. That changes the cost basis of your shares.
Your basis at the time of a sale, after taking all these things into account is called your Adjusted Cost basis.
Net Proceeds
This is the amount you receive from the sale of your shares minus any commissions and fees you paid for making the sale.
Capital Gains and Losses
The difference between the net proceeds of a sale and your adjusted cost basis. This is the amount you get taxed on.
Long Term Capital Gains/Losses
Capital gains and losses from sales of stocks you've owned for more than one year.
Short Term Capital Gain
Capital gains and losses from sales of stocks you've owned for 1 year or less
Tomorrows terms: What is a tax lot? What is tax lot identification? What is your default cost basis method? What are Covered securities?
Stay tuned!
Laurie Frederiksen Invest with your friends! www.bivio.com