Friday, March 16, 2012

Overpaying Taxes

Figuring cost basis is crucial to not overpaying taxes

Every year, at about this time, many investors go scrambling for their tax records.

And if you thought it was hard to dig the TV remote control out of the couch, that's nothing next to the task some people face when finding stock information.

Your cost basis on a stock, on its face, is pretty simple. It's how much you paid for a stock. But this seemingly basic piece of information can get complicated pretty quickly.

For some investors, shares were bought decades ago with different brokers or no broker at all. Corporate events, such as stock splits and mergers, can also change your cost basis. Reinvested dividends and commissions also come into play. And then add the additional complication that many investors inherit stock, and finding the basis on shares from a decedent can be very difficult.

There are tools that can help you do some sleuthing. Intuit's Turbo Tax Premier comes with a tool that helps you calculate cost basis. The Turbo Tax tool factors in corporate events and reinvested dividends. But, the tool does require some information from you, including the date the stock was purchased. If you don't have that information, the tool can't perform its calculations.

Netbasis, available at, is a Web-based tool that helps investors find the cost basis on investments. This tool also requires you to have some information about the transaction, including the date of purchase.

It's worth your while to do some research to get your cost basis. If you're not able to determine a cost basis, you may be required to use a basis of $0, which means you might be facing a pretty hefty tax bill. So you'll want to go through old records, contact your brokerage or do whatever it takes to figure out what your basis on the stock might be.

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