Posted by Unifirst Financials & Tax Advisors

How to Determine Unidentified Cost Basis of Bonds & Stocks

How to Determine Unidentified Cost Basis of Bonds & Stocks

When calculating the tax liability of securities holdings, investors should first consider the acquisition date they acquired those assets. This key information is essential in determining whether the income generated will be treated as long-term or short-term income, the latter being taxed at a significantly higher rate.

When you sell stocks or bonds, you either win or lose. If you make a profit, you have to pay capital gains tax. But before you determine how much tax you owe, you must first calculate the "basis cost." The basis cost is the initial value of a stock; usually, the purchase price plus other costs paid (like commissions and fees) and any adjustments, like dividends and stock splits. If you lose this relevant information, start with the date the stock was purchased (or estimated purchase date) and work with your broker to service to fill in the blanks.


Understand the Tax Rules

The investment capital that you get back from securities sale is not taxable, only the profit. But if you don't know what your investment capital was, you can't provide a cost basis for the securities you sold. In this case, the IRS will assume that 100% of the sale proceeds are taxable capital gains. This hints that you will pay taxes on the capital initially invested in stocks and bonds and any investment gains.

 

Determining the Date of Purchase

To find an unknown base cost for stocks and bonds, you must first determine the acquisition date. Find any purchase records you have, such as receipts or brokerage summaries. If there is no evidence of purchase, make a good estimate of when you bought the securities based on life events at the time of purchase.

If you inherited stocks or bonds, find the date of death. If the stocks were a gift, work with the donor to determine when they were given to you. If you can't get an exact date, look for a date range or at least a year of purchase.


Find the Correct Cost

As soon as you have a purchase date, consult your accountant or broker, or access paid or free services that provide historical stock prices and bonds to find the price on that date. The investor relations unit of the issuing entity may have historical price information. Ask your administrator or transfer agent if you can track your transactions using your social security number (SSN). 

If you have a range of conceivable purchase data, find the stock's average price or bond in the data range. If all you have is a purchase year, find the average price for that year. Once the basis price is in the portfolio records, sell the bonds.


Pay the Appropriate Tax

If your investment is small and you have to spend a lot of time and money to achieve a basis cost, consider paying capital gains tax as if your bonds' basis price is zero. The rate of capital gains is generally much lower than the normal rate of income tax. For example, if you sell stocks for $ 1,000, you would have no basis cost, and the capital gains tax rate would be 15%, your tax would only be $ 150.


Conclusion

The capital basis cost is important for investors to calculate and monitor when managing a portfolio and filing taxes. Calculating the cost of equity base is often more complicated than adding the purchase price to taxes. Ongoing monitoring of the company's stock is important to ensure investors understand the profit or loss profile of a position in stocks and ensure that capital gains and losses are correctly declared. While brokers tend to track and report this information to the IRS, there are some situations where they don't have to, such as equipped stocks. In addition to brokers, there are many other available resources to help you keep an accurate basis.

The basic concept of costs is quite simple, but it can be complicated. A tracking cost basis is necessary for tax purposes, but it is also necessary to help track and determine investments' success. It is important to keep good documentation and to simplify your investment strategy where possible.



Unifirst Financials & Tax Advisors
Contact This Member