Steve M Posted March 15, 2012 Report Share Posted March 15, 2012 I have had several clients who are now retired whose only steady income is SS. But they have brokerage accounts which have had a lot of activity but little in the way of taxable gains- certainly not enough to meet the filing requirement threshhold. If I don't file a return for them, will the IRS request a return because they have lengthly 1099-B's? And if I don't file, what about the one's who have carry-over capital gain losses. Do you just suspend and track their losses (or increase them if they have a yearly loss) even though they are not filing? Thanks, Steve M Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 15, 2012 Report Share Posted March 15, 2012 Even though their taxable gains may not meet the filing requirements, quite often the gross sales amount does. In that case, a return is required to show that after subtracting basis there is no taxable income. It is not how many transactions are on the 1099B, but the amount of the gross sales that will trigger IRS interest. 2 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 15, 2012 Report Share Posted March 15, 2012 I agree with Gail. It's not the net taxable gain or loss that will cause trouble, but the total sales amount. Unless that is less than would trigger a need to file, you still need to do the return. That return is what lets the IRS know why the total sales amount is not all taxable income. 1 Quote Link to comment Share on other sites More sharing options...
Steve M Posted March 15, 2012 Author Report Share Posted March 15, 2012 I have looked for other filing criteria in the 1040 Tax Facts but can find nothing on total sales amount. Do you have some reference that I can check. I tend to agree that a return should be filed if only to show the IRS that there is no taxable income, but I cannot find anything in writing to that effect. If you have a reference it would be greatly appreciated. SteveM Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 15, 2012 Report Share Posted March 15, 2012 When in doubt, file a return. If for no other reason than to start the SOL clock running. And whether or not you find a cite which requires you to file or excuses filing, you can be sure the clients will receive a CP2000 in a couple of years if the gross sales amount exceeds the filing threshhold. Why wait until then, especially because you'll be answering the question "But why did you tell me I didntt have to file?" until you're blue in the face. Clients with that attitude are also more reluctant to pay, by the way. Some of them want to cling to the notion that you are somehow responsible for the notice even though you didn't charge them for the initial advice not to file. 3 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 15, 2012 Report Share Posted March 15, 2012 The total amount of sales income is part of 'Gross Income', and if that total exceeds the limit, they have to file. The amount of the limit varies based on filing status and age, of course. But when in doubt, always file. It never hurts to file, it can hurt a lot, several years later, if they do not file when they should have. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 15, 2012 Report Share Posted March 15, 2012 John is so very right. If they get a letter, they will assume that YOU did not tell them correctly, and thus it is up to you to fix it, at no charge to them. Plus they will tell their friends and family that YOU made a mistake! It's not worth it, Steve. I know you are trying to be nice, and not have to charge them if they don't need to file. But you have to look at "Total money coming in" [which is what we call Gross Income] not taxable profit. Because the IRS default assumption is that every taxpayer has zero basis, in all stock sales. Plus, even if they have a net cap loss carryover, the IRS computer does not even net that with the cap gain income for this year. So you are not overcharging them, you are PROTECTING them by filing that return. 1 Quote Link to comment Share on other sites More sharing options...
Steve M Posted March 15, 2012 Author Report Share Posted March 15, 2012 I do agree and have been filing for my clients, even though I feel guilty because I am not sure they need to. In this particular case, there were about $200K of stock sales on the 1099-B and only $1900 short term gains (no long term). That 1900 along with 600 in dividends is this persons total income without social security. Oh yes, and the management fee was 10K. (the broker must be happy). I guess I will file to keep the IRS away from her, but I just wanted to be sure I was doing the ethical thing. Thanks for all your help and opinions. Steve M Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 15, 2012 Report Share Posted March 15, 2012 >>there were about $200K of stock sales on the 1099-B<< That is gross income and requires a tax return filing! Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted March 15, 2012 Report Share Posted March 15, 2012 I have looked for other filing criteria in the 1040 Tax Facts but can find nothing on total sales amount. Do you have some reference that I can check. I tend to agree that a return should be filed if only to show the IRS that there is no taxable income, but I cannot find anything in writing to that effect. If you have a reference it would be greatly appreciated. SteveM I have template letters for responding to CP2000 for unreported stock sales. Rest assured, if you do not file their return and include the stock sales, in less than 18 months you will be doing it anyway, with a client that will be asking... "Why didn't you tell me I needed to file a year ago?" If no return is filed, the IRS will issue a CP2000 showing the total receipts from the stock sales as income and NO BASIS! Properly computed, the gain may be a loss or just a few hundred dollars. Accept the advice of the experienced members here. FILE THE RETURN WITH THE STOCK SALES!!! Quote Link to comment Share on other sites More sharing options...
Bart Posted March 15, 2012 Report Share Posted March 15, 2012 Page 8 of the 1040 instructions has chart A which lists the gross income level by filing status and age by which a person is required to file a tax return. Page 9 has charts B and C which list other situations where a person is required to file. Quote Link to comment Share on other sites More sharing options...
fredazcpa Posted March 16, 2012 Report Share Posted March 16, 2012 And in The Tax book, page 1-2 for years 2012-2007 All it takes is for them to not file one time, with stock sales, and get the "heart attack letter", taxes on $200,000 of stock sales, tax, interest, penalites and neg Penalties equal 75K at least When in doubt file the return as has been stated above Quote Link to comment Share on other sites More sharing options...
LindaB Posted March 17, 2012 Report Share Posted March 17, 2012 I do agree and have been filing for my clients, even though I feel guilty because I am not sure they need to. In this particular case, there were about $200K of stock sales on the 1099-B and only $1900 short term gains (no long term). That 1900 along with 600 in dividends is this persons total income without social security. Oh yes, and the management fee was 10K. (the broker must be happy). I guess I will file to keep the IRS away from her, but I just wanted to be sure I was doing the ethical thing. Thanks for all your help and opinions. Steve M If you really want to help this client, convince them to change brokers. The broker is churning the investments and taking the money. 2 Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 17, 2012 Report Share Posted March 17, 2012 Excellent point, and right on target. Quote Link to comment Share on other sites More sharing options...
taxxcpa Posted March 18, 2012 Report Share Posted March 18, 2012 If you have gross sales of stocks, the IRS assumes your basis is zero unless you indicate otherwise by filing. I've seen this come up several times when a client assumed that because he lost money by trading stocks that there was no need to report the sales. Quote Link to comment Share on other sites More sharing options...
Joel Posted March 18, 2012 Report Share Posted March 18, 2012 With the new basis reporting to the IRS won't there become a lesser need to file this type of returns as the CP2000 will not be issued? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 18, 2012 Report Share Posted March 18, 2012 Joel, in a perfect world that is what would happen. But don't expect it to happen soon, or all the time, so keep on protecting your clients until then. My guess, looking at your pic, is that you will retire before that happens. Wait until you stop getting new clients who bring in a CP2000 for such sales for at least a year or two, before you trust that the IRS matching will work. Remember, that basis reporting only applies when the same brokerage handled both the buying and the selling. If the stock was bought by the client from X broker, then later moved to Z broker, it will not have a basis. But t/p will assume that it does, probably. LOL Quote Link to comment Share on other sites More sharing options...
Bart Posted March 18, 2012 Report Share Posted March 18, 2012 The taxpayer can give Z broker all the basis information. I think Z broker then has to keep track of and report that basis information. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 18, 2012 Report Share Posted March 18, 2012 Yes, they can, IF the customer gives them the data. However, to be fair, the new broker is not just going to take the customers word for it, they have to see some documentation to back it up, and my guess based on many years experience is that often the customer is not going to have that documentation handy, [if they kept it at all....] and thus we are still going to see 'Various' a lot for some time, years at least. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 19, 2012 Report Share Posted March 19, 2012 Various is used when there are multiple purchases of a stock and one sale. Do you really want to list all of the dividend reinvestments as separate purchases when the stock or fund is sold in one lump? Quote Link to comment Share on other sites More sharing options...
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