New for the 2011 tax year is Form 8949 Sales and Dispositions of Other Capital Assets. This form does not replace the traditional Schedule D; rather the information from any Forms 8949 that you complete will be consolidated onto your schedule D.
The introduction of Form 8949 for the 2011 tax year coincides with the new requirement that brokers include basis information in their year-end reports to their clients. Starting with stocks purchased in 2011, brokers are now required to report the cost basis of those securities to taxpayers and the IRS when the taxpayer disposes of those securities. Reporting requirements for mutual funds and bonds will begin in 2012 and 2013, respectively. The new reporting requirements are expected to generate additional revenue by requiring taxpayers to report accurate basis information when they dispose of assets.
In a recent IRS Webinar, tax officials acknowledged that they expect some initial difficulties with the transition to the new form. For example, what should you do if the basis that your broker reports to you is incorrect? You can use Column g of Form 8949, labeled Adjustments to gain or loss, if any, to make an adjustment to your basis. You must put the code “B” in Column b to indicate that the reason for your adjustment is to correct the basis of your asset. The instructions for Form 8949 provide complete details.
If this all sounds needlessly complicated, it’s because it can be. In addition, you may be required to file multiple Forms 8949 depending on whether your broker was required to report basis information for the asset involved, and you will still be required to break down your sales between short and long-term.
One final note – while Form 8949 won’t change the tax you owe, it may increase the cost of having your tax return prepared, especially if you use a preparer that charges you by the number of forms used for your return.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.