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Posted by kevincostello on November 14, 2007, 12:19 pm
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I have bought and sold a number of shares of two particular
companies over the last two years. When I prepared my taxes
last year, I calculated the sales as "last-in, first-out",
maintaining the first shares I had purchased in my account
in case I ended up holding them more than a year. I have now
sold all of the shares of these two companies, and by a
careful tracking of last-in, first-out, I indeed have a
number of shares that I have held for more than a year, and
this will save me about $500 on my tax bill.
1) There is nothing wrong with this method, is there? I have
been consistent and careful in my accounting for these
shares over two years, and the numbers work out correctly. I
have also been consistent in using this method for all
shares of individual stocks that I own.
2) Am I required to use the same holding time accounting
method for shares of every company I own? Would I be able to
calculate by "last- in, first-out" for some sets of shares,
and "first-in, first-out" for others? I would of course be
consistent for shares in one particular company.
I know that Turbo Tax and the like default to "first-in,
first-out", and it is up to me to use a different method. I
just want to be sure I know the correct options as I
consider buying and selling stocks at the end of the year to
minimize my tax burden.
Thank you very much.
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<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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Posted by Phil Marti on November 15, 2007, 3:00 pm
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> I have bought and sold a number of shares of two particular
> companies over the last two years. When I prepared my taxes
> last year, I calculated the sales as "last-in, first-out",
> maintaining the first shares I had purchased in my account
> in case I ended up holding them more than a year. I have now
> sold all of the shares of these two companies, and by a
> careful tracking of last-in, first-out, I indeed have a
> number of shares that I have held for more than a year, and
> this will save me about $500 on my tax bill.
>
> 1) There is nothing wrong with this method, is there?
There is something very wrong with it, based solely on what
you've written.
The default is FIFO unless you specify the shares you're
selling AT THE TIME OF SALE and get WRITTEN confirmation
from the broker.
> I have
> been consistent and careful in my accounting for these
> shares over two years, and the numbers work out correctly. I
> have also been consistent in using this method for all
> shares of individual stocks that I own.
You get an A for planning and an F for execution unless you
got the necessary broker confirmations.
BTW, if any of the sales was for a loss you may also have
wash sale issues.
> 2) Am I required to use the same holding time accounting
> method for shares of every company I own?
No
> Would I be able to
> calculate by "last- in, first-out" for some sets of shares,
> and "first-in, first-out" for others? I would of course be
> consistent for shares in one particular company.
Consistency doesn't matter, and it's not dealer's choice.
It's either FIFO or specific identification for each sale.
> I know that Turbo Tax and the like default to "first-in,
> first-out"
And now you know why.
See IRS Publication 550.
--
Phil Marti
Clarksburg, MD
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Ira Smilovitz on November 15, 2007, 3:00 pm
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> I have bought and sold a number of shares of two particular
> companies over the last two years. When I prepared my taxes
> last year, I calculated the sales as "last-in, first-out",
> maintaining the first shares I had purchased in my account
> in case I ended up holding them more than a year. I have now
> sold all of the shares of these two companies, and by a
> careful tracking of last-in, first-out, I indeed have a
> number of shares that I have held for more than a year, and
> this will save me about $500 on my tax bill.
>
> 1) There is nothing wrong with this method, is there? I have
> been consistent and careful in my accounting for these
> shares over two years, and the numbers work out correctly. I
> have also been consistent in using this method for all
> shares of individual stocks that I own.
If you didn't instruct your broker to sell the more recent
shares and if the broker didn't confirm receiving your
instructions in writing, then you are forced to use the
first-in, first-out method. You can't choose "after the
fact" which shares to sell.
> 2) Am I required to use the same holding time accounting
> method for shares of every company I own? Would I be able to
> calculate by "last- in, first-out" for some sets of shares,
> and "first-in, first-out" for others? I would of course be
> consistent for shares in one particular company.
You can choose to sell shares in any order you want...
provided you instruct your broker at the time of sale and he
confirms in writing that he received your instructions. If
you fail to do that, you must use the first in, first out
method. Each sale stands alone.
> I know that Turbo Tax and the like default to "first-in,
> first-out", and it is up to me to use a different method. I
> just want to be sure I know the correct options as I
> consider buying and selling stocks at the end of the year to
> minimize my tax burden.
They default to first-in, first-out because that is the
method you are required to use unless you take the steps
mentioned above.
Ira Smilovitz
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by MyVeryOwnSelf on November 15, 2007, 3:00 pm
Please log in for more thread options > I have bought and sold a number of shares of two particular
> companies over the last two years. When I prepared my taxes
> last year, I calculated the sales as "last-in, first-out",
> maintaining the first shares I had purchased in my account
> in case I ended up holding them more than a year. I have now
> sold all of the shares of these two companies, and by a
> careful tracking of last-in, first-out, I indeed have a
> number of shares that I have held for more than a year, and
> this will save me about $500 on my tax bill.
>
> 1) There is nothing wrong with this method, is there? I have
> been consistent and careful in my accounting for these
> shares over two years, and the numbers work out correctly. I
> have also been consistent in using this method for all
> shares of individual stocks that I own.
According to IRS publication 550, chapter 4,
"If you buy and sell securities at various times in varying
quantities and you cannot adequately identify the shares you
sell, the basis of the securities you sell is the basis of
the securities you acquired first."
[That is, first-in, first-out is the default unless ... ]
"If you have left the stock certificates with your broker or
other agent, you will make an adequate identification if
you:
- Tell your broker or other agent the particular stock to
be sold or transferred at the time of the sale or transfer,
and
- Receive a written confirmation of this from your broker
or other agent within a reasonable time"
[That's how to deviate from first-in-first-out.]
> 2) Am I required to use the same holding time accounting
> method for shares of every company I own? Would I be able to
> calculate by "last- in, first-out" for some sets of shares,
> and "first-in, first-out" for others? I would of course be
> consistent for shares in one particular company.
Each security can be handled differently, as long as you
follow the two steps above for each non-FIFO sale. That is,
(a) identify which shares to sell when placing the sell
order and (b) get the written confirmation.
> I know that Turbo Tax and the like default to "first-in,
> first-out", and it is up to me to use a different method.
I use Turbo Tax, and my recollection is that the user enters
the sale date and purchase date of each lot sold. Tax
software can't default to anything because it doesn't know
about shares you haven't sold. (Maybe Quicken and similar
products have the default you mention.)
Disclaimer: I'm not a tax pro, just a taxpayer.
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Arthur Kamlet on November 15, 2007, 3:00 pm
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> I have bought and sold a number of shares of two particular
> companies over the last two years. When I prepared my taxes
> last year, I calculated the sales as "last-in, first-out",
> maintaining the first shares I had purchased in my account
> in case I ended up holding them more than a year. I have now
> sold all of the shares of these two companies, and by a
> careful tracking of last-in, first-out, I indeed have a
> number of shares that I have held for more than a year, and
> this will save me about $500 on my tax bill.
>
> 1) There is nothing wrong with this method, is there? I have
> been consistent and careful in my accounting for these
> shares over two years, and the numbers work out correctly. I
> have also been consistent in using this method for all
> shares of individual stocks that I own.
>
> 2) Am I required to use the same holding time accounting
> method for shares of every company I own? Would I be able to
> calculate by "last- in, first-out" for some sets of shares,
> and "first-in, first-out" for others? I would of course be
> consistent for shares in one particular company.
>
> I know that Turbo Tax and the like default to "first-in,
> first-out", and it is up to me to use a different method. I
> just want to be sure I know the correct options as I
> consider buying and selling stocks at the end of the year to
> minimize my tax burden.
I have no idea how turbotax handls this, but LIFO is simply
one of many possible ways to specifically identify, at time
of sale, the shares you sell.
You have to make this specific identification at time of
sale and have the broker confirm it.
Oherwise FIFO is deemed to be the way to account for which
shares were sold.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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