Investment cost basis justification for taxes

[Delawaredave]

What justifications are needed for cost basis of an investment ?

If you buy a stock or mutual fund 10 years ago - what documentation should you have for your taxes ? Original purchase confirmation letter ? What if that is not available ?

Is the cost basis stated with Vanguard or Fidelity acceptable ? I moved some stocks/funds between investment houses - I think the asset value transfers - but the cost basis did not transfer ?

Thought I read somewhere that your "audit window" is 7 years - so income/deduction documentation should be kept that long. But investment purchase confirmations should be kept as long as you hold the investment - correct ?

 

[riskadverse]

You would need some kind of documentation of the date you bought the stock. A bank statement with a cancelled check would be good enough . . . something that would enable you to recreate the the cost basis. IE: you have how much you spent and the number of shares, so the price should closely match the historical price you would find on say Yahoo finance for that stock on that day (accounting for splits too). Mind you, you do not need to submit any documentation on the cost basis unless you get audited. It's pretty much an honor system unless / untill you get audited.

 

[Martha]

IRS publication 552 talks about record keeping requirement for individuals.

The IRS also talks about record keeping here: http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

If you get audited, it is your job to prove the cost basis of the asset.

 

[d]

it is your job to prove the cost basis of the asset

... but if i recall correctly, absent absolute documentation a reasonable approximation is "acceptable".

 

[ERD50]

... but if i recall correctly, absent absolute documentation a reasonable approximation is "acceptable".

This is an area (among many) where I think our government is really, really hosed up. Expecting the taxpayer to have the documentation to prove the cost basis after decades is just silly. It is a burden on honest people and a golden opportunity for dishonest people. There is such an easy solution:


A) Buy a capital investment, report the cost basis on that years tax return.
B) In each following year, report that cost basis again - update it if it changed due to capital improvements (or anything else that might change the cost basis).
C) When you sell it, the cost basis is right there on last years return.

No digging back decades for records, the IRS could question the cost basis or any adjustment in the year it was reported. I would sure prefer it this way. If I do some house remodeling, just report the costs that year, no digging back for records.

-ERD50

 

[LOL!]

Uh, you'd have to go back and dig up old tax records wouldn't you?
It's just as simple to save the year-end annual statements with your tax returns. Even for decades.

 

[ERD50]

Uh, you'd have to go back and dig up old tax records wouldn't you?
It's just as simple to save the year-end annual statements with your tax returns. Even for decades.

No - it would be on last year's return.

Not all year-end annual statements include the cost basis. I don't get one for my house, for example.

-ERD50

 

[Craig]

ERD50, I agree it is a hassle. But, the entire system is hosed, frankly. But where would you report these cost bases on the return? Just toss a random schedule in? Never heard of this serving as evidence of basis acceptable to the feds ... I gather you're floating this as an improvement to the system.

Better to go to a national sales tax, but I'm sure that will lead to too much acrimonious debate, so let's not go there.


For those who cost average for decades, I believe a statement from Vanguard, for example, would provide reasonable third party evidence of basis.

 

[ERD50]

I gather you're floating this as an improvement to the system.

Right - an improvement to the hosed system.

Better to go to a national sales tax, but I'm sure that will lead to too much acrimonious debate, so let's not go there.

Right - that is a huge change, even if I think it has merit, I can't imagine it happening, or not getting hosed with a few years anyway.

For those who cost average for decades, I believe a statement from Vanguard, for example, would provide reasonable third party evidence of basis.

Again, that is fine for mutual funds that provide that info, but many capital investments do not.

-ERD50