We just released the 2015 8949 IRS tax forms. If you have sold any stocks or mutual funds in 2015, then you can generate IRS Form 8949 to calculate your gain or loss on a stock sale. EquityStat will automatically calculate your short-term gains and losses and long-term gains and losses and generate a PDF 8949 form. You can then save or print out this form and give it to your accountant or tax preparer. To generate Form 8949 click the Tools menu and then select the Generate Form 8949 menuitem.
Tag: schedule D
What Is Cost Basis? A Complete Guide for Stock Investors
Cost basis is the original value of an investment for tax purposes, and it is one of the most important numbers you need to know as an investor. If you have ever wondered why your accountant asks for purchase prices and dates when you sell a stock, cost basis is the reason. Get it wrong and you could end up overpaying or underpaying the IRS.
What Is Cost Basis?
Investopedia defines cost basis as the original value of an asset, usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions. That adjusted number is what the IRS compares against your sale price to figure out your capital gain or loss.
In plain terms, cost basis answers one question. How much did this investment actually cost you, once every purchase, split, and reinvestment is factored in?
Why Cost Basis Matters
The IRS requires brokers to report the cost basis on many types of investments, and you are responsible for reporting your capital gains and losses accurately on your tax return. You cannot calculate a capital gain or loss without first knowing your cost basis, so this number sits at the center of your entire tax picture for the year.
But cost basis is not only a tax number. It is also the foundation for calculating your actual return on an investment. Your return measures what you gained or lost relative to what you truly put in, and that starting point is your cost basis. Without an accurate cost basis, your return numbers will be off too, sometimes by a lot, especially once splits and reinvested dividends are in the mix.
Get your cost basis wrong and the consequences go both ways. Report it too low and you will pay more tax than you owe. Report it too high and you risk an audit down the road. Also, if your cost basis is inaccurate anywhere in your portfolio, your return calculations will quietly be wrong as well, which can lead you to misjudge how a stock is actually performing.
How to Calculate Cost Basis
Calculating cost basis looks simple at first. If you buy 100 shares of a company for $120, your cost basis is $120.
Once real life gets involved the calculation gets more complex. What happens if that stock does a 3 for 2 split? What if you buy another 50 shares a few months later at a different price? What if you reinvest capital gains distributions in the same year you also have a split and a new purchase? Each of those events changes your cost basis, and by the time you have a few years of purchases, splits, and reinvested dividends stacked on top of each other, doing this math by hand becomes genuinely difficult and easy to get wrong.
This is exactly the kind of calculation where a small tracking error early on can throw off both your tax numbers and your return numbers.
How EquityStat Makes Cost Basis Easier
EquityStat handles this calculation for you. Enter your purchases, stock splits, and capital gains as they happen, and EquityStat keeps a running, accurate cost basis for every holding in your portfolio automatically.
The same applies to dividends. EquityStat lets you record dividend transactions, including short term capital gains and long term capital gains, and it tracks reinvested dividends and reinvested capital gains separately so those re-investments are properly calculated into your cost basis.
Since EquityStat keeps this number accurate, it also uses your cost basis to calculate your investment return, giving you a true picture of how each holding is actually performing, not just an estimate based on your original purchase price.
When you are ready to sell, whether you are selling your entire position or just part of it, EquityStat calculates your gain or loss instantly. From there, you can generate IRS Form 8949, showing the cost basis for every investment you sold during the year, ready for tax season.
If you are tired of reconstructing your cost basis from old statements every April, tracking it as you go is the easier path, and it is exactly what EquityStat is built to do.
TurboTax and Investment Taxes
Do you use TurboTax to calculate your investment gains and losses? Do you use TurboTax to generate form Schedule D or Form 8949? If so be aware that TurboTax is now charging extra for these features.
In addition to paying $59.99 for the Deluxe version of Turbo tax, if you want to calculate your investment capital gains or losses from stock, mutual fund or ETF sales you will have to pay an additional $20 or $30.
You can read more about the changes to TurboTax here.
http://www.latimes.com/business/hiltzik/la-fi-mh-intuits-catastrophic-turbotax-20150118-column.html
If you are looking for an alternative to TurboTax for calculating your capital gains or losses, checkout EquityStat. With EquityStat you can generate IRS Form 8949 . Form 8949 is used to report your short and long term capital gains and loses. Once you enter your purchases and sales of your investments into EquityStat, you can then generate Form 8949 and use this form to fill out your Schedule D Form.
Investments, Taxes, Form 8949, Schedule D
Selling Investments and the IRS
The IRS is requiring more reporting when you sell your investments. Specifically, they require you to report the investment cost, cost basis in investment terminology, and the gain/loss from the investment sale. If you purchase 100 shares of a stock and sell 100 shares of the stock, your cost basis is easy to calculate. Things get more difficult when you purchase shares in different lots. For example, you purchase 100 shares in 2011, 50 shares in 2012, 200 shares in 2013 and sell 160 shares in 2014.
Form 8949
What is your cost basis in the above scenario? This is not an easy calculation to do. To make things even more difficult, you have to report both your short term gains and long term gains to the IRS separately. Fortunately, EquityStat makes this easy. EquityStat calculates your cost basis for each investment and can also generate IRS Form 8949 which is a report that shows your gain/loss on each investment sold. Your tax preparer can then use Form 8949 to create the IRS Schedule D form.
To Generate Form 8949, click the Tools menu at the top of the portfolio and then click the Generate IRS Form 8949. Choose your tax year and EquityStat will generate the report showing both your short term and long term gain/loss on each investment you sold during the tax year.