As soon as we celebrate the start of 2014, the clock starts on the 2013 tax reporting season. For many advisors, the next three and a half months are one of the busiest times of the year, with a number of last-minute requests from other professionals who work with your clients, such as CPAs and estate planning attorneys. Let’s do a little advanced preparation and discuss some of the key areas where you can serve your clients’ tax reporting needs.
Have you heard enough about cost-basis reporting yet? This subject will likely require more of your attention now that the new cost-basis reporting rules of 2011 are in effect. For 2013 tax returns, reporting requirements continue to include stocks, mutual fund shares, ETFs and dividend reinvestment plans. In fact, you will see more of these securities in your clients’ accounts included under the “covered” category, since we are now three years into the reporting requirements for stocks and two years into the reporting requirements for mutual funds. This means that more of your clients’ cost-basis information will be reported to the IRS by their custodian.
The distinction between “covered” and “non-covered” is often confused. “Covered” means the security was bought after the new cost-basis reporting rules went into effect, and “non-covered” means it was bought before that.
Debt instruments and options were originally scheduled to be part of the cost-basis reporting rules beginning in 2013. However, this implementation date was delayed by the IRS and now will be covered under the cost-basis reporting rules that began on Jan. 1, 2014. Your responsibility is to make sure that you understand the accounting method that will be used for any of the securities bought or sold in a covered transaction. More complex debt instruments, such as convertible bonds, bonds with more than one rate and foreign debt are not currently scheduled to be covered until Jan. 1, 2016.