TOP DRAWER ARTICLE
The Value of Basis
by
HL Carpenter
The Internal Revenue Service wants to know your basis. Why? Because basis can affect the amount of tax you owe, and the IRS thinks lots of folks are misreporting it.
In IRS-speak, basis is your investment in an asset. That asset can be your business property, your home, the securities in your portfolio, your jewelry – pretty much any property of value.
If you sell an asset and receive more money than you invested in it, you have a capital gain. Selling the item for less than your investment gives you a capital loss. Either way, the calculation – and the ultimate tax effect - depends on your basis.
That’s one reason Congress recently proposed having your broker report what you pay for your investments. However, the requirement is not yet law, so for now you’re on your own.
Still, there’s no reason to be lax about keeping track of basis. In addition to helping you avoid overpaying your taxes, accurate records can be invaluable if the IRS has questions.
Originally published August 2007.
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HL Carpenter, an experienced investor and a CPA, specializes in reader friendly financial and tax topics for individuals and small businesses, and publishes Top Drawer Ink, a newsletter that's chock full of humor and common sense information.
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This information should not be considered legal, investment or tax advice. Top Drawer
Ink Corp. does not provide legal, investment or tax advice. Always
consult your legal, investment and/or tax advisor regarding your
personal situation. |
Last update: December 30, 2009
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