Newsgroups: misc.taxes.moderated

On Nov 14, 9:19 am, kevincoste...[at]cox.net wrote:

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For stocks, you really only have two options for determining the basis
(and holding period) of stocks sold:

First-in, First-out. This is the default and applies unless you do
something differently.

Designated Shares. This will apply if you specifically identify which
shares are sold. This allows you great flexibility, since you can
choose the last-in, first-out strategy or any other mix. There are,
however, two important things that need to be done in order for you to
use this method -- and which may make it too late if you've already
sold:

1. You must identify and designate the share to be sold at the time
of sale.
2. The identification must be on the broker confirmation of that
sale.

As far as I know, you can freely switch between these two methods at
any time.

For mutual funds, there is another option (average cost), but that
doesn't apply to direct ownership of company stocks. It is also a
method that IIRC, once used, needs to continue being used until all of
that particular mutual fund are sold.

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kevincostello[at]cox.net wrote:

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You can save even more by selling the most expensive shares,
which may not be the last-in. Also, since shares held more
than a year are taxed at a lower rate, you may be able to
save more by selling long-term shares than short-term
shares.

- quote -

The only two options you have for accounting for stock sales
are FIFO or specific shares. LIFO is just a particular case
of specific shares, where you just happen to specify the
youngest shares. In order to use the specific shares method
you have to tell your broker which shares to sell, and get a
written acknowledgement from the broker that they sold the
designated shares. If you don't specify explicitly, you're
assumed to be selling FIFO.

So unless you've been making these explicit designations,
there is definitely something wrong with your method.

In the case of mutual funds you also have the option of
using average cost basis accounting.

- quote -

You can use different methods for different companies, and
you can change the method for any particular company at any
time. However, if you sell a mutual fund and use the
average cost basis method you can't go back to specific
shares or FIFO for that fund until you close out your entire
position.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

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No, as long as, when you placed each sell order, you told
your broker which specific shares you were selling, and the
broker confirmed the specific identification of the shares
in writing within a reasonable time. If that was not done at
the time of each sale, then you must use first-in,
first-out. If you used the wrong method when you prepared
your tax return for 2006, you will have to file an amended
return.

There are really only two methods allowed for stocks:
first-in, first-out, and specific identification. You can
accomplish the same thing as last-in, first-out by keeping
track of it yourself and using specific identification for
each sale, but you can't tell the IRS that you are using
last-in, first-out as a general method.

You can't decide what method to use when you do your taxes
at the end of the year. To use specific identification, the
two steps that I mentioned above have to take place at the
time of the sale: your notification to the broker and the
broker's written confirmation. If you didn't follow the
specific identification procedure at the time of the sale,
then by default you chose to use first-in, first-out.

- quote -

No.

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Yes, by using specific identification, as described above.

- quote -

You don't even have to do that. You can use specific
identification for some sales, and first-in, first-out for
other sales of the same company. Of course you can't sell
the same shares twice, so you have to keep careful records
of what you sold when.

- quote -

The software works that way because that's how the IRS
regulations work. The default is first-in, first-out unless
you took active steps to use specific identification.

One other comment: You refer to this as a method of
determining your holding period. It's not clear whether you
realize that it also determines the cost of the shares that
you sold. The cost that you report for each sale is the cost
of the particular shares that you sold, no matter which
method you used to determine which shares you sold. So using
one method or the other will affect the amount of gain or
loss on each sale, as well as whether it is short-term or
long-term.

Bob Sandler

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<kevincostello[at]cox.net> wrote:

- quote -

I have no idea how turbotax handls this, but LIFO is simply
one of many possible ways to specifically identify, at time
of sale, the shares you sell.

You have to make this specific identification at time of
sale and have the broker confirm it.

Oherwise FIFO is deemed to be the way to account for which
shares were sold.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

According to IRS publication 550, chapter 4,

"If you buy and sell securities at various times in varying
quantities and you cannot adequately identify the shares you
sell, the basis of the securities you sell is the basis of
the securities you acquired first."

[That is, first-in, first-out is the default unless ... ]

"If you have left the stock certificates with your broker or
other agent, you will make an adequate identification if
you:

- Tell your broker or other agent the particular stock to
be sold or transferred at the time of the sale or transfer,
and

- Receive a written confirmation of this from your broker
or other agent within a reasonable time"

[That's how to deviate from first-in-first-out.]

- quote -

Each security can be handled differently, as long as you
follow the two steps above for each non-FIFO sale. That is,
(a) identify which shares to sell when placing the sell
order and (b) get the written confirmation.

- quote -

I use Turbo Tax, and my recollection is that the user enters
the sale date and purchase date of each lot sold. Tax
software can't default to anything because it doesn't know
about shares you haven't sold. (Maybe Quicken and similar
products have the default you mention.)

Disclaimer: I'm not a tax pro, just a taxpayer.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<kevincostello[at]cox.net> wrote:

- quote -

There is something very wrong with it, based solely on what
you've written.

The default is FIFO unless you specify the shares you're
selling AT THE TIME OF SALE and get WRITTEN confirmation
from the broker.

- quote -

You get an A for planning and an F for execution unless you
got the necessary broker confirmations.

BTW, if any of the sales was for a loss you may also have
wash sale issues.

- quote -

No

- quote -

Consistency doesn't matter, and it's not dealer's choice.
It's either FIFO or specific identification for each sale.

- quote -

And now you know why.

See IRS Publication 550.

--
Phil Marti
Clarksburg, MD

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<kevincostello[at]cox.net> wrote:

- quote -

If you didn't instruct your broker to sell the more recent
shares and if the broker didn't confirm receiving your
instructions in writing, then you are forced to use the
first-in, first-out method. You can't choose "after the
fact" which shares to sell.

- quote -

You can choose to sell shares in any order you want...
provided you instruct your broker at the time of sale and he
confirms in writing that he received your instructions. If
you fail to do that, you must use the first in, first out
method. Each sale stands alone.

- quote -

They default to first-in, first-out because that is the
method you are required to use unless you take the steps
mentioned above.

Ira Smilovitz

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I have bought and sold a number of shares of two particular
companies over the last two years. When I prepared my taxes
last year, I calculated the sales as "last-in, first-out",
maintaining the first shares I had purchased in my account
in case I ended up holding them more than a year. I have now
sold all of the shares of these two companies, and by a
careful tracking of last-in, first-out, I indeed have a
number of shares that I have held for more than a year, and
this will save me about $500 on my tax bill.

1) There is nothing wrong with this method, is there? I have
been consistent and careful in my accounting for these
shares over two years, and the numbers work out correctly. I
have also been consistent in using this method for all
shares of individual stocks that I own.

2) Am I required to use the same holding time accounting
method for shares of every company I own? Would I be able to
calculate by "last- in, first-out" for some sets of shares,
and "first-in, first-out" for others? I would of course be
consistent for shares in one particular company.

I know that Turbo Tax and the like default to "first-in,
first-out", and it is up to me to use a different method. I
just want to be sure I know the correct options as I
consider buying and selling stocks at the end of the year to
minimize my tax burden.

Thank you very much.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >