Leading accounting and business valuation firm Gettry Marcus CPA, P.C., identifies important information concerning year-end stock sales.
Stock held by an investor is a capital asset under the tax law. Gain from the sale of stock held for more than a year qualifies as long-term capital gain, taxed at a reduced rate (zero, 15 or 20 percent) compared to the rates that apply to ordinary income. To achieve these favorable rates, investors generally want to hold their stock for more than a year. (Note: Depending on economic conditions, an investor may decide it is better to lock-in gains by selling the stock, even if the holding period is one year or less and the gains would be short-term.)Trade Date
A transfer of stock traded on an exchange involves a trade date and a settlement date. Stock is considered purchased or sold for tax purposes on its trade date, when the trade is made, rather than on its settlement date, when the stock is delivered and payment is made. There is a gap between the trade date and the settlement date, with the trade date coming first. Conversely, if an investor wants to realize a loss in the current year from a sale of stock, the investor must ensure that the trade date is on or before December 31.
The stock's holding period is based on the trade date. The holding period actually begins on the day after the trade date and includes the day it is disposed of. The settlement date is not relevant when computing the holding period. The holding period is measured in calendar months, not days; thus, one month has elapsed on the same date of the succeeding month as the date of purchase, regardless of the number of days in the month.
For nonpublicly traded stock, the holding period begins with the receipt of title, and ends on the day of transfer, not the contract date.
Identification of Stock Sold
When the same stock is acquired on different dates, the first stock purchased is considered to be the first stock sold, unless the taxpayer can specifically identify the stock being sold. Securities left in the custody of a broker are adequately identified when the specific securities to be sold are indicated to the broker, and a written confirmation of the identification is received within a reasonable time. This identification process can also apply to stock issued without certificates. Stock acquired at different times (and usually at different prices) can be treated as different lots; the seller can identify the specific lot being sold.
Brokers report stock sales on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. For corporate stock purchased in or after 2011, brokers must report not only the sales proceeds but the dates of acquisition and sale, the type of gain or loss, and the cost or other basis.
Brokers must provide this information to their customers by February 15 of the succeeding year. Taxpayers should check the basis reported by the broker and should contact their broker immediately if they feel that the information is incorrect. The broker can issue a corrected Form 1099-B. If the broker reports an incorrect basis, and the taxpayer is not able to get it corrected, the taxpayer may have to go through the expense of substantiating the basis to the IRS.
Gettry Marcus CPA, P.C. is a Top 200 firm nationally with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries which include Real Estate and Health Care. We have one of the premier and most credentialed Business Valuation, Litigation and Forensic Accounting Groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients' businesses, to better understand their goals and problems and to help them attain the vision they have for their company.
Gettry Marcus is "Always Looking Deeper" to build value for our clients. Visit the Gettry Marcus tax page here.
Media inquiries: Contact Fayellen Dietchweiler at 516-364-3390 ext. 225 or at fdietchweiler(at)gettrymarcus(dot)com.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
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