Capital Gains and Your Stocks

Do you have investments in the stock market? If you hold stocks, bonds, or other securities, the team at Optima Tax Relief highlights some of the considerations to keep top of mind heading into the 2019 Tax Filing season.

Watching your investments in securities, stocks and bonds grow for you can be a very exciting part of the American dream, as well as a great way to diversify your income streams, and in turn, your assets and net worth. Whether you have a handful of shares in your company’s stock, or you are a well-versed, well diversified trader, the experts at Optima Tax Relief reviews their tips and tricks for navigating profits and the resulting tax liabilities. 

In order to understand the potential tax liability scenarios generated from the selling of various securities, you must first determine the cost basis. In general terms, the basis is valued by determining the purchase price of the stock or bond, plus costs incurred through the purchase transaction. This can include costs related to commissions, as well as recording fees and transfer fees. 

The selling of securities – and the tax liabilities resulting from the selling – are generally determined by the ability to designate the specific stocks sold. If you can identify the specific shared of stocks sold, the formula above is what is used to determine the basis. 

If you can’t identify the stock shared sold (often the case if you purchased shares at various times, and at fluctuating price points) the basis is determined differently. According to the IRS, the basis is then calculated by “the shares you acquired first, then the basis of the stock later acquired, and so forth (first-in first-out). Except for certain mutual fund shares and certain dividend reinvestment plans, you can’t use the average basis per share to figure gain or loss on the sale of stock.”

The good news is that the burden is on the broker to provide the detailed basis information – via the IRS Form 1099-B. However, by law, as the stockholder, it is your responsibility to maintain records that (missing the rest of the sentence – this was provided to us like this)