Individual recordkeeping obligations?

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AnotherSandwich
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Individual recordkeeping obligations?

Post by AnotherSandwich » Mon Mar 12, 2018 1:37 pm

Do people with after tax accounts have any obligation to keep their own records? Or is it safe to rely on Fidelity-et-al to handle all of it?

Or maybe IRS itself receives these records on daily basis (as people are making purchases) and can make it available if needed? In some sense IRS needs to verify tax-payers claim, so they must have some records.

Lets say you want to start selling and have to choose cost basis for tax purposes - what if there are no records? What if the institution I invested with no longer exists?

Even for 401k, what if someone wants to close it, pay penalty, and start selling - who is responsible for providing cost-basis records?

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BolderBoy
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Re: Individual recordkeeping obligations?

Post by BolderBoy » Mon Mar 12, 2018 2:05 pm

AnotherSandwich wrote:
Mon Mar 12, 2018 1:37 pm
Do people with after tax accounts have any obligation to keep their own records? Or is it safe to rely on Fidelity-et-al to handle all of it?
You should download and keep on hand any records you may need to satisfy an IRS audit.
Or maybe IRS itself receives these records on daily basis (as people are making purchases) and can make it available if needed? In some sense IRS needs to verify tax-payers claim, so they must have some records.
IRS gets copies of year-end forms such as 1099B, 1099INT, etc.
Lets say you want to start selling and have to choose cost basis for tax purposes - what if there are no records? What if the institution I invested with no longer exists?
Since 1916 taxpayers have been required to keep sufficient records to prove financial claims made on 1040 tax returns. Congress upped the ante by requiring brokerages and mutual fund companies to start tracking some of that info and reporting it to the IRS. It must match what you put on your 1040 or you'll get a letter of inquiry from the IRS about it.
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jebmke
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Re: Individual recordkeeping obligations?

Post by jebmke » Mon Mar 12, 2018 2:30 pm

I keep a separate record of the tax basis for all taxable assets. I've been doing this for years and I will continue to do it despite the "covered shares" tracking. I record the basis from the transaction confirmation.
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AnotherSandwich
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Re: Individual recordkeeping obligations?

Post by AnotherSandwich » Mon Mar 12, 2018 2:37 pm

Since 1916 taxpayers have been required to keep sufficient records to prove financial claims made on 1040 tax returns. Congress upped the ante by requiring brokerages and mutual fund companies to start tracking some of that info and reporting it to the IRS. It must match what you put on your 1040 or you'll get a letter of inquiry from the IRS about it.
Thank you! So in theory, if I only made purchases after 2011, I can just use Fidelity information when reporting sales to IRS? It looks like I have an option to keep my own records in order to confirm that Fidelity is correct, but this is just for my piece of mind. I'm not obliged or required to keep any records other than what is provided by Fidelity. Or am I misunderstanding something?

I also found that Vanguard says that
You remain responsible for reporting your cost basis information to the IRS every year on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered. You should use your own records in addition to the cost basis information we provide.
They say you 'should', but what if I completely trust Vanguard, and just pass on their info to IRS? In this case I don't need (and am not required) to keep my own records?

livesoft
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Re: Individual recordkeeping obligations?

Post by livesoft » Mon Mar 12, 2018 2:40 pm

There have been way too many instances reported at bogleheads.org of Vanguard incorrectly reporting cost basis to the IRS, such that taxpayers have had to try to get Vanguard to fix their mistakes. That alone should make one keep their own records which is actually trivial to do.
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AnotherSandwich
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Re: Individual recordkeeping obligations?

Post by AnotherSandwich » Mon Mar 12, 2018 2:59 pm

@lifesoft
That alone should make one keep their own records which is actually trivial to do.
How would I start? Kind of a self fulfilling prophecy if is just download the records from vanguard. How do I record independently, how would I know settlement date etc? Help is appreciated.

jebmke
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Re: Individual recordkeeping obligations?

Post by jebmke » Mon Mar 12, 2018 3:11 pm

AnotherSandwich wrote:
Mon Mar 12, 2018 2:59 pm
@lifesoft
That alone should make one keep their own records which is actually trivial to do.
How would I start? Kind of a self fulfilling prophecy if is just download the records from vanguard. How do I record independently, how would I know settlement date etc? Help is appreciated.
I record the transaction from the confirmation. Right now I use Quicken (2012) but if I were starting fresh I would just do it in a spreadsheet.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Epsilon Delta
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Re: Individual recordkeeping obligations?

Post by Epsilon Delta » Mon Mar 12, 2018 4:07 pm

You have a legal obligation to keep your own records, confirm that any 1099s are correct and challenge them if they are not. Of course a lot of people do not live up to their legal obligations, which is why we have 1099s and other information returns in the first place.

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House Blend
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Re: Individual recordkeeping obligations?

Post by House Blend » Tue Mar 13, 2018 8:43 am

AnotherSandwich wrote:
Mon Mar 12, 2018 2:37 pm
what if I completely trust Vanguard, and just pass on their info to IRS? In this case I don't need (and am not required) to keep my own records?
Just because your shares are covered, and your broker has made no mistakes, that does not mean that you are following tax laws correctly by copying numbers from your 1099s without alteration.

To give two examples:

1. If your fund paid a supposedly qualified dividend on shares you sold that were held for 60 days or less, then the dividend on those shares is *not* qualified, and you have to pay ordinary income tax on it. AFAIK, brokers are under no obligation to adjust the amounts in Box 1b to account for this (nor are they obligated to issue corrected 1099s in case the sale takes place in the next tax year).

2. You sell covered shares of Fund X at a loss in your taxable brokerage account, and within 30 days you exchange from Fund Y to Fund X in your IRA (or your spouse's IRA, or your joint account at Elsewhere Brokerage). You now have a wash sale that your broker will not be reporting. Whoever does your taxes will have to figure out how to report this transaction and cannot simply copy the numbers from your 1099-B.

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