If you have a taxable account (i.e. non-retirement), new cost basis reporting requirements took place effective for the 2012 tax reporting year. The changes in the tax rules apply to the following securities:
- Mutual Funds
- Exchange Traded Funds
- Stock in Dividend Reinvestment Plans
While individual bonds and options reporting requirements will not change until 2014 or later, stocks, mutual funds and exchange traded funds will be affected in 2013 due to the 2012 rule changes.
The new tax rules require us to report the original or adjusted purchase price (cost basis) to both you and the IRS when these securities are sold, exchanged, or redeemed. However, if the security was purchased prior to January 1, 2012, then this is non-covered and not reported to the IRS. All other purchases during 2012 and later will be covered and reported. Remember, this change should not apply to your IRA or other tax-deferred retirement accounts.
What do you need to do?
1.During your tax preparation, please consult with your Tax-Advisor regarding the appropriate default disposition (sale, exchange or redemption) for your taxable account.
2.Then, discuss with your Financial Consultant the options that you have for Cost Basis reporting on your taxable account.
Consequently, you have several default options for the reporting methods on your accounts. Depending on your taxable income and your various financial data, one method may be preferable over another. We encourage you to discuss the best option for your situation with your tax preparer. Then, contact us to make these changes and complete any necessary paperwork. Your tax preparer will know which method is best for your situation, i.e. High-Cost Long-term, average cost, first-in first out, or last in first out.
If you have further questions about this, please call your Founders Investment Services Representative.
Securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Financial Network Investment Corporation. Financial Network Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits -Not Insured by any Federal Government Agency.
This article was written by Derek Hawk with Founders Investment Services Team. It was published in Founders Open Exchange Newsletter (January 2013).