Under a 2008 law, broker-dealers, advisers, mutual fund companies and others will have to report the cost basis of securities to investors and the IRS on Forms 1099-B - some as soon as 1/1/11.  For investors, the change is good and bad.  While they will no longer have to do the math - that will be done by the financial institution - investors lose any leeway in reporting - or fudging - the numbers.

Right now, it's up to an investor or his/her accountant to track cost basis - a tough computation, especially when a stock is old or a mutual fund includes years' of dividend and cap-gain reinvestments.  Fortunately, a taxpayer who doesn't know the exact cost basis can instead estimate it on the tax return - a high estimate will reduce capital gains.  Going forward, however, the IRS will be able to hold taxpayers to a stricter standard.

The new rule may prompt investors and their accountants to take pains to identify specific share or unit lots that are to be sold. 

Three Things RIA Clients Must Know  -- From Charles Schwab.   

1. When the client or independent investment adviser sell securities acquired in 2011, Schwab will be required to report details about the client's gain or loss to the investor and the IRS on Form 1099-B.  Reporting all cost basis information on one's tax returns is still the responsibility of the investor.
2. Unless the adviser selects another method, Schwab will calculate the client's gains and losses using the FIFO cost basis method for equities.
3. When selling an investment, the cost basis method used to calculate the client's gains and losses cannot be changed after the trade settles. 

Rule Implementation.   The reporting changes will roll out over a 3-year period:

• Equities - acquired on/after 1/1/11.
• M/F's, ETFs, Dividend Reinv. Plan (DRIP) shares - acquired on/after 1/1/12.
• Other securities, including options and fixed income investments - acquired on/after 1/1/13.

For further details, click onto:   [ WSJournal's 'Cost-Basis Rules', 10/18 ]