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Non-Tech : Invest / LTD -- Ignore unavailable to you. Want to Upgrade?

To: SJS who wrote (9052)	6/18/1999 9:53:00 PM
From: Alski	Read Replies (2) \| Respond to of 14427

Steve, Now you done went and got me on a soap box. This is a way too long post. You're right, you must always report all proceeds from all sales and they better add up to at least what's been reported on your 1099's. However, only proceeds are reported on 1099's. The basis is what you paid for a security and your broker does not report that to the IRS. It's the basis you're supposed to adjust, not the proceeds. A lot of those examples you're looking for are in the IRS pubs, 550 in this particular case. All the forms and pubs are available on-line at irs.ustreas.gov Actually, I agree your way would be better, but the instructions on page 51 of pub 550 seem pretty clear to me: "If you exercise a call, add it's cost to the basis of the stock you bought. If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss.... "If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss.... "If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put..." There's a nice table about puts and calls and closing, exercising, and expiring on page 52 too. The italics above are mine. You only reduce your amount realized when figuring your gain, you still have to report all your proceeds. Of course, if you're using tax software, probably the only way to adjust the gain without adjusting the proceeds is to adjust the basis. Now, would you get audited if you "expired" the option and sold (or bought) the underlying, I doubt it. But that ain't the way instructions say to do it. Everybody on this thread needs to be familiar with IRS pub 550. Would you believe at least one "CPA" didn't even know to add the already taxed reinvested mutual fund dividends to the original basis. You gots to look out for your own. Here's a true story (but with made up numbers) that happened to my aunt. Buy 100 shares of ABCDX for $2000. Reinvested $20 div buys one more share, pay taxes on $20. Same $20 reinvest, same one more share, pay taxes again; every year for 9 more years. What a lousy fund! Now, sell all shares @ $20. Proceeds $2200. Subtract $2000 original cost and pay cap gains on $200? WRONG! But I'd bet you'd be surprised how many people pay cap gains on that $200 on the advice of their tax "professional". Wouldn't you think a professional would notice something was wrong if you were selling more shares than you bought, and ask for the rest of the records? In case I didn't word that too clearly, the basis was $2200, not $2000. Those ten $20 reinvested dividends done already been taxed once. Well too much is too much. My apologies...Alski