Increased Reporting Requirements for Capital Gains
The reporting requirements for capital gain & loss have become substantially more cumbersome due some changes made by the IRS for the 2011 tax year and beyond. Starting with the 2011 tax returns, taxpayers will need to summarize individual capital gains transaction on the new Form 8949, Sales and Other Dispositions of Capital Assets.
The new form has two pages, one for reporting short-term capital gains and losses and one for reporting long-term capital gains and losses. Each page requires the taxpayer to separately report those transactions reported on Form 1099-B where (1) the basis was reported to the IRS by the brokerage company, (2) where the basis was not reported to the IRS by the brokerage company, and (3) where there is no 1099-B. Only one type of transaction can be reported on the page. Consequently, some taxpayers may need to complete and file up to three Forms 8949; one those transactions with basis reported, one for those transactions without basis reported, and one for those transactions without a 1099-B.
Once all capital gains transactions are listed on the multiple Forms 8949, they are summarized on Schedule D, which has been slightly modified from 2010.
The new Form 8949 also requires information that was not required to be reported in the past, including a “code” for each transaction, and although the official instructions have not been released by the IRS, the codes will most likely be used to indicate whether a transaction is a wash sale, section 1202 gain, small business stock gain, or if the basis reported by the broker is incorrect. The form will also have a section to report adjustments to gains or losses if the information that was reported to the IRS by the brokerage company was incorrect, such as when a taxpayer needs to correct the basis of a particular transaction reported to them on Form 1099-B.
The increased reporting requirements will require taxpayers to reconcile all of their capital gains and losses from stock, bonds, mutual funds and other similar investments reported on Form 8949 to the gross proceeds and basis, if provided, on Form 1099-B. These new requirements will be of special importance to taxpayers with large amounts of reportable capital gain transactions, as Form 8949 will require additional detailed information and likely increase the amount of time it takes to prepare Schedule D.
If your broker does not have the correct basis information on all of your capital assets, now would be a good time to contact them to have that information corrected so it can be accurately reported on Form 1099-B, helping you to reduce the hassle and headache that comes from this increased reporting requirement.
Pursuant to IRS Circular 230, the Internal Revenue Service requires us to inform you that any tax advice included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by the IRS on the taxpayer. That said, please do not hesitate to contact us if you have any further questions regarding this matter.
