It isn’t here yet, but it’s coming soon. Beginning with the 2011 tax year, those Forms 1099-B you receive from your broker for sales of stock will include not just the amount you received in the sale, as it does currently, but also your cost basis. The added information will be a convenience to those who are inclined to comply with the tax law, and a deterrence to those who are not. Basis reporting won’t be comprehensive, however, and it will be interesting to see how taxpayers respond to the gaps. (more…)
Archive for May, 2010
Gaps in Broker Reporting of Basis
Friday, May 14th, 2010Historic Drop in Actual Tax Rate
Thursday, May 13th, 2010An article in USA Today reports that the actual rate of tax paid by Americans fell in 2009 to the lowest level since Harry Truman was president. Overall just 9.2% of personal income was consumed by federal, state and local taxes — and that includes property and sales tax as well as income tax. (more…)
Tax News
Thursday, May 13th, 2010More disaster relief: The IRS is allowing additional time to meet certain tax obligations for people living in or having businesses in certain counties of Kentucky.
Worldwide Tax on U.S. Citizens
Wednesday, May 12th, 2010The United States is unique in applying its income tax to the worldwide income of its citizens. No other country asks citizens who have taken up permanent residence outside its borders to pay tax on their worldwide income. What’s behind the U.S. approach? (more…)
Best Graduation Present Ever: Continued Health Insurance Coverage
Tuesday, May 11th, 2010Graduation from college forces many students into a scramble for health insurance — or worse, a period without coverage. Although many provisions in the healthcare reform law won’t take effect for several years, a rule that extends coverage for children to age 26 takes effect soon. The provision will help many graduates make a smooth transition from the coverage they had in college to the coverage they’ll have as a member of the workforce. Agencies charged with implementation, including the IRS, have issued temporary regulations explaining how this new rule works. (more…)
Roth Conversions: Predicting Your Tax Bracket
Monday, May 10th, 2010A Roth conversion involves a tradeoff between the income tax you’ll pay on the amount converted and the income tax you would otherwise pay later on withdrawals from a traditional retirement account. This post is the second in a series on how to compare the conversion tax rate with the anticipated tax rate on withdrawals, or ATRW. The previous one explained why the appropriate comparison is between the lowest rate that applies to conversion income and the highest rate that applies to withdrawals in retirement. The focus this time is on predicting the tax bracket that will apply to withdrawals, especially for people who are still working and more than a few years away from retirement. (more…)
Extenders Bill to Move Forward
Friday, May 7th, 2010In her weekly press conference, Nancy Pelosi said the Ways & Means Committee will take up the extenders bill soon, perhaps as early as next week. An annual ritual, the extenders law prevents various temporary tax breaks, such as the itemized deduction for state and local sales tax, from expiring. There’s little debate over whether these popular breaks should be extended — but intense disagreement over how to replace the revenue in the federal budget. Among ideas being floated are reform of the foreign tax credit and eliminating capital gain treatment for “carried interests,” which provide compensation to managers of hedge funds and other investment partnerships.
The Senate version of this legislation includes a provision that would in some circumstances allow conversion of a traditional 401k account to a Roth account within the same plan.
Disposition of Life Insurance Policy
Thursday, May 6th, 2010Last year, the IRS issued guidance (Rev. Rul. 2009-13 and 2009-14, PDF) on the tax treatment of certain life insurance transactions, including surrender or sale of a cash value policy. A piece appearing today in Tax Notes Today (a publication of Tax Analysts, subscription required) discusses those rulings. Author Kenneth N. Orbach, a professor at Florida Atlantic University, suggests that the IRS did not correctly analyze the issues. (more…)
Tax News
Thursday, May 6th, 2010Covered Calls and Tax Straddles
Wednesday, May 5th, 2010When someone owning shares of stock sells an option that would allow someone to buy those shares, the seller of the option is using a covered call strategy. The option is a call because it’s an option to buy, not an option to sell (which would be a put option). And because the person selling the option owns shares that can be used to meet the obligation to deliver stock if the option is exercised, the option is covered. Many people using this strategy believe they don’t have to worry about the complex tax rules that apply to straddles — and many of them are wrong. (more…)
