undefined | Better HN

0 pointstombert2y ago0 comments

Yeah, this has been my frustration too; I got audited by the IRS in 2021 because I forgot to declare stock sales, and so I owe about $8,000: $7,000 for the missing taxes and a $1,000 fine.

I wasn't terribly mad about the money (if I owe $7,000 then that's what I owe, it was my fault), but what I was mad about was the fact that I had to do anything in 2021 at all. If the IRS knows enough to know what I owe them, then why exactly do I have to file, just to have them validate that the numbers I give them match the numbers that they have on file.

0 comments

Kon-Peki2y ago

They don’t know enough to know how much you owe them, but they do know that you got $xx,xxx from a brokerage account and that the tax would be $7,000 unless there were some things unknown to them that would make it a lower amount. You didn’t tell them about any of those things, so they assumed the full amount but were perfectly willing to be shown that that this assumption was wrong.

fire2y ago

my favorite part is how brokerages like morgan stanley don't report the cost basis when they report your sales to the irs, and for no reason I can find.

This means that if you don't report sales from your side so you can note the cost basis, the irs assumes a cost basis of 0 and calculates owed tax on the entire sale value - this applies to stuff like RSU grants as well, and trips up a great many people entering the tech sector ( especially young people who may not have much tax filing experience )

I legitimately don't know why brokerages don't all include the cost basis by default ( or why they aren't required to by law )

Kon-Peki2y ago

Cost basis is not so cut and dry. In fact, the IRS (federal law?) allows you to use almost any reasonable method for determining it as long as you are consistent.

An example of where the brokerage wouldn't know:

You buy 5 shares of stock at $X and then a few months later buy 6 more shares at $Y. Later on you sell 3 shares for $Z. What is your cost basis? It could be $3X or it could be $3Y. Or maybe a blend of the two $(2X + Y)! The IRS thinks that you should be the one to decide, not the brokerage.

j / k navigate · click thread line to collapse

0 pointstombert2y ago0 comments

Yeah, this has been my frustration too; I got audited by the IRS in 2021 because I forgot to declare stock sales, and so I owe about $8,000: $7,000 for the missing taxes and a $1,000 fine.

0 comments

Kon-Peki2y ago

fire2y ago

my favorite part is how brokerages like morgan stanley don't report the cost basis when they report your sales to the irs, and for no reason I can find.

I legitimately don't know why brokerages don't all include the cost basis by default ( or why they aren't required to by law )

Kon-Peki2y ago

Cost basis is not so cut and dry. In fact, the IRS (federal law?) allows you to use almost any reasonable method for determining it as long as you are consistent.

An example of where the brokerage wouldn't know:

j / k navigate · click thread line to collapse