"Hold the applause. Just send money."
So goes the cheeky old saw. But this week, I'm going to suggest
that as Americans prepare to mail the Internal Revenue Service our
quarterly estimated tax payments (what? You say you've got a "real"
job? Not self-employed? Lucky duck), we also give a round of
applause to the folks who just made tax time easier. Not pleasant,
mind you. Just easier.
You see, effective Jan. 1, the IRS is about to institute a new
rule requiring that brokerages begin keeping track of how much you
pay when you buy a stock -- your "cost basis," in accounting
parlance. Seems not all of us keep good track of our investing
of us even toss our brokerage statements in the shredder (imagine
that!). And when we do that, we risk forgetting exactly how much we
paid for any given stock between time of purchase and April 15.
Result: A lot of hair-pulling, a lot of guessing at the "right"
answers, a lot of fingers crossed in hopes we don't get audited
(which is currently the
way the IRS has to confirm that the cost basis we state on our
income tax returns, is in fact the price we originally paid for our
And that's the problem, in a nutshell. The IRS doesn't trust our
memories, or our record-keeping skills, and worries we might be
tempted to fudge the numbers a bit come tax time. (Or even if we're
honest, the IRS fears that in calculating our profits and losses in
April, we'll use 20-20 hindsight to pick the most advantageous "tax
lots" of stock to have bought and sold, siphoning potential taxes
away from a cash-starved Treasury.) So they're sticking
) , and the rest of the brokerage world with the responsibility --
and expense -- of keeping track of it for us.
New result: Henceforth, when you sell part of your holdings in a
given stock, your brokerage will begin asking you
specific shares you're selling. It's going to keep track of this,
and of how much you pay when you buy a stock as well, and come tax
time a year from now, your annual Form 1099-B will remind you of
all your transactions -- to the decimal. (Similar treatment applies
to DRIPs and ETFs beginning in tax year 2012, and to options and
bonds in 2013.)
How to play it
Brokerages will incur higher costs from the new record-keeping
requirements, and face possible fines if they mess up their math
homework and send an inaccurate statement to a customer or to the
IRS. So this is incrementally bad news for brokerages. Conversely,
by simplifying tax time, the new regs are going to decrease
taxpayers' need for in-person tax advice from paid preparers.
That's bad news for
) , but I think it's good news for TurboTax maker
) , because taxpayers could find its software becoming easier to
use than ever.
Of course, the biggest winner is you, the individual
Merry Christmas from the IRS