Keep in mind that the reporting rules only apply to the sale of securities purchased on or after the effective dates above. Whether cost basis is reported to the IRS or not, you are ultimately responsible for the information on your tax return. So it’s a good idea to save your original purchase and sale documentation, including records of any automatic reinvestments, to make sure it matches the information financial institutions will report to the IRS.
Also, even though FIFO (first in, first out) is the IRS default method for both individual securities and mutual funds, most institutions (including Schwab) will report individual securities using the FIFO default method and mutual funds using the average cost single-category method. Make sure your financial institution uses the accounting method of your choice.
For comprehensive information on investment expenses, as well as how to report all kinds of investment income, including mutual funds and the rules for netting short-term and long-term capital gains, see IRS Publication 550: Investment Income and Expenses.
Be sure to consult your tax professional about your unique situation, preferably well before the end of the year. And no matter the time of year, it’s also a good idea to check with your tax adviser before you enter into any transaction that might have significant tax consequences.
Rande Spiegelman is vice president of financial planning at the Schwab Center for Financial Research.
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