For the first time ever, there are new cost basis reporting rules for the Form 1099-B. Other tedious rules for landlords and businesses are yet to come into play in 2012. So if you are an investor or a business or a landlord, here is a brief recap of what to expect this year.
Reporting Rules for Investments
Though financial institutions were previously mandated to report certain investment information (date of and amount of sale proceeds) on Form 1099-B, it was the investor who gave the acquisition date and purchase price on Schedule D. This meant that investors, with the help of their tax preparers, had to clarify the cost basis of investments prior to compiling the information in Schedule D.
The investors had some freedom in choosing the method for the process especially if he or she had acquired several shares of the same security at different prices and times. As it were, the investor could choose to establish the shares being sold as the providers of the optimal tax result, thus effectively decreasing the taxable gain or increasing loss.
Now under the Emergency Economic Stabilization Act of 2008, financial institutions are mandated to report the relevant cost basis for covered securities started over a three-year period on Form 1099-B. These new rules generally apply to: stocks, real estate trusts and exchange-traded funds acquired on January 1, 2011; mutual funds and dividends acquired on or after January 1, 2012; and any other remaining securities like fixed income and debt instruments acquired on or after January 1, 2013.
Reporting Rules for landlords and businesses
Initially, businesses used to report payments for services on Form 1040 especially if the provider got $600 or more. This also applies to commissions, royalties, rents and interest. However, the rules do not touch on payments for goods. A business does not have to report corporations’ payments either.
Beginning 2012, this was expected to change under the Affordable Care Act of 2010. Businesses will have to provide 1099s for payments of corporations. Furthermore, the controversial healthcare legislation imposed extended rules on reporting payments for goods.
Thanks to the opposition from the tax community and the business sector, the extended requirements were cancelled. Therefore, for the year 2012, there are no new extended reporting requirements, especially those under the healthcare law. Unfortunately, there still are those clients who will panic about these new rules yet to take effect and those that should have but haven’t. You can set the record straight and calm their nerves.