Tax Tip of the Week
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Don't forget to recover your cost
For the week of
May 28, 2001
Good recordkeeping is essential to keeping your taxes the lowest allowed under the law. If you own investments, your system should be designed to track an investment from the time you acquire it until the time you sell it. Incomplete records make it difficult to calculate the correct gain when you sell an investment, and that may cause you to pay unnecessary taxes. Here are some common mistakes investors make.
- DRIPs. If you participate in a
dividend reinvestment program or DRIP, your dividends and capital gain distributions remain in your mutual fund
to purchase additional shares. Don't overlook adding these reinvestments to your total cost.
- Commissions. Commissions and fees
that brokers charge to purchase and sell an investment increase your cost in the investment. Don't forget to include
these costs when you sell your stock.
- Nondeductible IRA contributions.
Don't ignore the nondeductible contributions made to your traditional IRA. Your prior tax returns should provide
the information you'll need to correctly calculate the taxable portion of each withdrawal, whether you convert
the funds to a Roth IRA or you simply withdraw funds from your IRA.
- Inheritances. Don't forget to "step-up" an asset's tax cost when you inherit a stock. Generally, the tax basis is adjusted to an asset's fair market value on the date of your benefactor's death. From that point on, you'll need to keep the same kinds of records as you would for any investment.
Finally, don't rely on your mutual fund company to keep track of your cost information for you. If a company merges with another or changes computer systems, it may be difficult for you to obtain your cost information. For recordkeeping suggestions that will fit your situation, contact us.
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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