One common cause of tax issues is when you sell a security at no profit. Taxpayers tend to overlook these types of sales when reporting information on their tax return, thinking that because no profit was gained the IRS won’t care about the sale. Unfortunately, that’s incorrect!
That’s because when you sell a stock or security, the brokerage firm has to report the gross proceeds of the sale to the IRS. As a result, the IRS knows how much you made on the sale, without you reporting it. What they don’t know, however, is how much you paid for the security. So if you don’t report the sale and indicate the cost basis on Schedule D of your tax return, the IRS treats the entire gross proceeds of the sale as profit. At the end of the day, that can mean the IRS thinks you owe them a lot more tax.
If you don’t report the sale and cost basis, the IRS will send you a notice indicating how much additional tax they think you owe. While it may be stressful to receive this type of notice, the solution is simply to provide the tax authorities with documentation regarding the original purchase price of the stock or security.
Have questions about reporting the sale of a security? Need help resolving the situation when you failed to file a Schedule D? Call Taxation Solutions, Inc. today for professional tax help backed by more than 40 years of experience.