Michigan Estate Planning Blog

The Basis for the Basis of Inherited Stock Saginaw, Michigan

The cost of anything is actually a little hard to pin down. Ask any accountant or business owner. Nevertheless, “cost basis” is incredibly important when it comes tax time, especially if it was a bequest or gift. So what if you inherited stock? It’s fairly common, but how do you determine the value for that? That’s the complicated calculus of the “cost basis.” If you think about it, stock represents a value that is forever changing on the basis of the market itself. Those ups and downs of the market can make it a bit difficult to calculate actual gain over the life of one individual. The wrinkle of how to count for those changing values when stock passes from the hands of that one individual to another makes the wrinkle more challenging. For a basic introduction to “cost bass” and the value of inherited stock, consider reading a recent Kiplinger article titled “Cost Basis for Inherited Stock.” When arranging your estate, planning for your assets means understanding what those assets are and their value to your heirs. Accordingly, this notion of cost basis is vital to you and your heirs.

Reference: Kiplinger (April [edition], 2013) “Cost Basis for Inherited Stock”

For more information, see www.jerryreiflawyer.com

 

Reducing Taxes By Minding Your Cost Basis

Investing and taxation can be tricky things, especially if you have been investing for some time. This can get even trickier when you transfer assets to loved ones or contemplate doing so. Taxation hinges on a few fundamental numbers, one of which is the cost basis. Given some interesting changes to the law governing cost basis, you may need to rethink your plans. If you have investment accounts, then you likely are aware of some of the changes that have begun to take effect and will continue to roll out through 2013. One of the most obvious changes was recently addressed in a Morningstar article titled “Beware the Default Method for Cost-Basis Elections.” Are you aware of the difference between the old style of cost basis election and the new possibilities your brokerage firm or mutual fund company can offer? Essentially, the old system of electing a cost basis was typically in the hands of the investor since they had to track and record their own cost basis on various investments. This meant averaging out the cost basis when selling various stocks at tax time. Now the cost basis is directly reported to the IRS from the firm/broker. Companies tend to offer the default means of reporting, but since information is going directly to the IRS, this also means there is enough information for specific-share identification in the cost basis election. The Morningstar article offers some interesting math to support why this actually can be advantageous for the crafty planner. The bottom line is that any trimming you can safely accomplish can secure more favorable capital gains taxation. Why? Because this cost basis carries over into another magic taxation number, the stepped-up basis, when investment assets are transferred. In short, small numerical changes add up and may affect your overall wealth-transfer planning.

Reference: Morningstar (March 26, 2012) “Beware the Default Method for Cost-Basis Elections”