MDNews - Cleveland-Akron-Canton

++++++++++++++++++++++++ + +++ +BUSINESS SECTION +++ ++++++++++++++++++++++++ Preparing for Tax Reporting Changes — Cost Basis Reporting By Martha S. Bethea, CPA IN 2008, CONGRESS ENACTED legislation that required cost basis reporting of certain securities to both IRS and the taxpayer whenever a security sale took place. The goal was to improve the accuracy of reporting (and payment of tax) on the gain from the sale of securities. It is estimated that 38 percent of the taxpayers reporting the sale of a security are misreporting their taxable gain or loss. The reporting requirements were phased in with the following effective dates — January 2011, equities; January 2012, mutual funds; and January 2013, debt instruments. The effective date for debt instruments was then delayed to January 2014 and for complicated debt instruments to January 2016. The reporting requirements fall mainly on the investment broker. However, what is reported by the broker may not be what taxpayers need to report on their tax return. What are the challenges you and your tax preparer will face when using the broker provided information? Wash-sale rules — selling a security at a loss and within 30 days before or after that date, the taxpayers acquires or enters into an agreement to acquire substantially identical securities. Brokers are required to report only the disallowed loss from 32 | Cleveland/Akron/Canton MD NEWS wash sales of the identical security in the same account and only for securities acquired after the above effective dates. The taxpayer must report the disallowed loss from wash sales from substantially identical securities in all accounts and for securities acquired prior to and after the effective dates above. For short sales that generate a gain, brokers are required to report using the settlement date (generally three days after the actual trade date). Taxpayers must report the transaction based on the actual trade date. A security traded on Dec. 30, 2013, would be reported in 2013 by the taxpayer, but reported by the broker in 2014 based on the settlement date. Brokers are required to report cost basis of publicly traded partnerships. However, the broker is not able to account for adjustments to the basis of the partnership and do not have data on any depletion allowances taken. This will result in the broker reporting an incorrect basis for the partnership and the potential for a matching discrepancy notice from IRS. Late-issued and corrected Forms 1099-B will continue to plague taxpayers and preparers, often arriving after the tax return has been filed for the year. Here are some steps you can take to help work through these issues with your tax advisor: ■ MDNEWS.COM ■ JANUARY/FEBRUARY 2014 + Review your broker accounts and determine the basis used by the broker for reporting. The default is first purchased, first sold for equities and average cost for mutual funds. These methods may not produce the best tax results for you. + Review planned transactions with you tax preparer before a sale so you understand the gain or loss that will be created. + Ask your broker to provide the 1099-B data in electronic format such as Excel to allow you tax preparer to better utilize the data and possibly import the data electronically into their software. + Consider software solutions that will generate Schedule D sub-schedules 8949. For high-volume traders, this may save tax preparation fees. Recognize that there is increased work related to these reporting requirements and provide your tax data as early as possible in the tax filing season. Martha Bethea is the managing director in charge of the Medical Practice Management Group of CBIZ/MHM LLC in Akron, Ohio. ■

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