Federal tax on sale of stock - long term

[HOSED]

I sold a considerable block of dividend paying stock In 2012 and 2013. I just got a letter stating I owe tax on a very large amount.
The way I understand it (PSC which morphed to AQUA America) Paid yearly dividends (on which I paid tax every year)
The way I figured the tax was to add up all the purchases (Using First in first out). This totaled ~ 100 shares and the cost was $1500. I subtracted this from the net sale price $2400 so I paid capital gain tax on $900
There were stock splits a few times also.
From their numbers it seems they want to tax the dividends AGAIN.
Note numbers I used were just an example the actual were a bit higher. Thanks for any input especially if I am missing something obvious!

 

[kranky]

Did you adjust your cost basis for the stock splits, for the shares you owned at the time of each split?

 

[cabri]

You can ask the IRS on what numbers that they based their calculations on.

Or ask for a sit down with an examiner and work it out with them.
That way you understand what is needed.

 

[Genx87]

I believe you should had received a 1099 showing your cost basis along with short and long term gains.

 

[fjmeat]

Start here: Look at your 1099 Summaries for those stock sales and compare those to what was submitted on your tax return. The IRS get's copies of those summaries, so they know what should or shouldn't have been reported on the tax return. It' likely an error on the tax return.

 

[cabri]

I believe you should had received a 1099 showing your cost basis along with short and long term gains.

I have never seen a 1099 summary showing cost basis and/or gains

Only the Sales and fees associated with the sale.

Stocks can be purchased through one brokerage and sold through another.
How would such be tracked?

 

[cabri]

Start here: Look at your 1099 Summaries for those stock sales and compare those to what was submitted on your tax return. The IRS get's copies of those summaries, so they know what should or shouldn't have been reported on the tax return. It' likely an error on the tax return.

As far as the IRS is concerned, the 1099 will show the sale which is the basic for taxing until you show why the full amount should not be taxed.
That is where younow need to identify the original cost basis to offset the perceived 100% capital gain.
Schedule D

 

[Slew Foot]

whatever it is, youre hosed

 

[kranky]

I have never seen a 1099 summary showing cost basis and/or gains

Only the Sales and fees associated with the sale.

Stocks can be purchased through one brokerage and sold through another.
How would such be tracked?

Brokers have been required to track cost basis information for a couple years now. If you transfer between brokers, your new broker will ask you to enter it. In some cases the cost basis will transfer over automatically but not always.

 

[BrunoPuntzJones]

whatever it is, youre hosed

Tee hee

OP, post the actual dates and numbers and someone can figure it out here.

 

[cabri]

Brokers have been required to track cost basis information for a couple years now. If you transfer between brokers, your new broker will ask you to enter it. In some cases the cost basis will transfer over automatically but not always.

It has been a while since I unloaded stocks. Nice to know.

 

[MomentsofSanity]

I believe you should had received a 1099 showing your cost basis along with short and long term gains.

We only began issuing cost basis for covered securities in the 2011 tax year on 1099s. Anything bought before Jan 1, 2011 would not have been included unless his broker was an exception.

Responsibility fell to the investor to report costs on their 8949.

 

[Slew Foot]

did you take the dividends in cash or did you reinvest them?

 

[Imp]

A reminder of why I haven't gone into options and margin accounts yet.

 

[HOSED]

Did you adjust your cost basis for the stock splits, for the shares you owned at the time of each split?
No please see dialog below

did you take the dividends in cash or did you reinvest them

All dividends were reinvested. so taxes were paid year every year from 1992 until 2013 on them (when I sold the remaining shares).

Computershare (who managed the shares) reported no cost basis just proceeds of 254,000 for the sale of 10000 shares. (in 2012)
The statement showed everything as non covered
The remaining 4400 shares were sold in 2013 + I got a detailed statement with covered and non covered breakdown (cost basis only for covered)
A total of 4800 shares were purchased from 1992- 2005 so 14,400 shares sold in total minus 4800 purchased means 9600 shares represent dividends that I already paid tax on right?????

Just an aside, I only have a hand written book of all purchases, and do not have all yearly statements from 1992-1999 (my parents handled the account at the time + did not keep everything )
Also the company that held the stock changed around 2002 and I was able to contact the company that bought them out but they said the records I need are not available.

Bottom line how do I account for the dividends that were sold in 2012? I reported 122,000 as my proceeds but actually got a check for 254,000 so this is why I got the letter.

And GOD bless anyone that can follow this !!!!

 

[MomentsofSanity]

Did you adjust your cost basis for the stock splits, for the shares you owned at the time of each split?
No please see dialog below

did you take the dividends in cash or did you reinvest them

All dividends were reinvested. so taxes were paid year every year from 1992 until 2013 on them (when I sold the remaining shares).

Computershare (who managed the shares) reported no cost basis just proceeds of 254,000 for the sale of 10000 shares. (in 2012)
The statement showed everything as non covered
The remaining 4400 shares were sold in 2013 + I got a detailed statement with covered and non covered breakdown (cost basis only for covered)
A total of 4800 shares were purchased from 1992- 2005 so 14,400 shares sold in total minus 4800 purchased means 9600 shares represent dividends that I already paid tax on right?????

Just an aside, I only have a hand written book of all purchases, and do not have all yearly statements from 1992-1999 (my parents handled the account at the time + did not keep everything )
Also the company that held the stock changed around 2002 and I was able to contact the company that bought them out but they said the records I need are not available.

Bottom line how do I account for the dividends that were sold in 2012? I reported 122,000 as my proceeds but actually got a check for 254,000 so this is why I got the letter.

And GOD bless anyone that can follow this !!!!

Dividends are taxed. If you choose to reinvest them it's just like buying new shares with new funds put into the account. You'll be taxed again on gains from when the reinvestment occured to the day you sell.

When you get a dividend it's your money. It's taxed as income from investments. If you choose to reinvest that money it's completely seperate. Every reinvestment is its own tax lot when it comes to capital gains.

EDIT: What you will need to do is determine the original purchased lots and their costs. You will then need a breakdown of every reinvestment and their cost basis as well.

 

[HOSED]

Dividends are taxed. If you choose to reinvest them it's just like buying new shares with new funds put into the account. You'll be taxed again on gains from when the reinvestment occured to the day you sell.

When you get a dividend it's your money. It's taxed as income from investments. If you choose to reinvest that money it's completely seperate. Every reinvestment is its own tax lot when it comes to capital gains.

EDIT: What you will need to do is determine the original purchased lots and their costs. You will then need a breakdown of every reinvestment and their cost basis as well.

THANKS a lot to all responders!
Since dividends were paid quaterly, I just want to be sure, so I need to provide quarterly statements for 1992 (inception) till Dec 2005 to a tax accountant as well as yearly 1099 Div's and yearly tax returns. The Line item detail & 1099 B provided by the Firm holding the stock covers Dec 2005 - sale dates (some in 2012, some in 2013)
If I can not find the statements should I check aqua america's web site??

 

[kranky]

You may end up having to make good-faith estimates of the data. If the records aren't available, that's all you can do. You probably can look up the stock price and dividend payout history. That will allow you to make a very good guess as to your cost basis for each reinvested dividend.

 

[Nograts]

If you owe the IRS money and just pay it, is that the end of it? Or does it somehow go on "your record" and affect other things?

 

[brianmanahan]

this is precisely why i do not reinvest dividends automatically.

i have them get added to my money market fund throughout the year, then at the end of the year i reinvest into mutual funds/ETFs and WRITE DOWN the details of that investment.

 

[Nograts]

this is precisely why i do not reinvest dividends automatically.

i have them get added to my money market fund throughout the year, then at the end of the year i reinvest into mutual funds/ETFs and WRITE DOWN the details of that investment.

All my holdings are in sheltered accounts, but I know at least TDAmeritrade has a good breakdown of all the transactions.

 

[brianmanahan]

All my holdings are in sheltered accounts, but I know at least TDAmeritrade has a good breakdown of all the transactions.

all companies do now, they had to start keeping those records in 2011

but at a lot of brokerages (including vanguard), anything you bought before 2011 just gets lumped into one big "various lots" lot

 

[Paratus]

Had a similar thing happen to me.

Broker had us sell some stuff before the capital gains tax increased a year or two ago. Due to our stupidity we didn't account for the sale on our taxes, (first time we had done something like this outside a retirement fund & the sale was buried in the statement when we filled out our taxes).

So the IRS figured it out and hit us with a tax on the entire sale amount at our nominal income tax rate plus late penalties and interest.

We ended up refiling that years taxes with the correct cost basis and documentation. We had to go back and get the original share price from my parents, since the records weren't available from the broker anymore. Eventually we found that the fund website had historical prices all the way back into the 90's.

The IRS accepted the refile and we ended up paying about 1/8 the amount they originally told us too. No penalty fees and less than $100 in interest.

Still felt like an idiot for missing it in the first place. :\

 

[kranky]

If you owe the IRS money and just pay it, is that the end of it? Or does it somehow go on "your record" and affect other things?

If they want more money and you pay it, that's the end of it. If you don't pay, and they have to resort to putting a lien on things you own, getting a judgment or seizing your bank accounts, that could show up on a credit report and/or ChexSystems.

 

[HOSED]

You may end up having to make good-faith estimates of the data. If the records aren't available, that's all you can do. You probably can look up the stock price and dividend payout history. That will allow you to make a very good guess as to your cost basis for each reinvested dividend.

thanks Kranky, Is this the data I need for years that I do not have detailed records? For many years I have only 1099 -Div that shows only the total yearly dividend, no quarterly breakdown. http://ir.aquaamerica.com/dividends.cfm



Spot on BrianManahan, all my personal investments since ~ 2006 have been long term CD's- as I get older I need simple investments! LOL) thanks Paratus! that is exactly my situation, but I have only be caught for 1 year (2012)! Sorry to hear you are in the same boat
I guess I should file an update for 2013 also (there is $100 K for which there was no basis so I did not report it) but as stated I have not been contacted by IRS YETI appreciate you people keeping this serious and easing my mind considerably!