Tax and Financial News for April 2003

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Basis, Basis, Where's the Basis?

Ok, it's 9:00 am and you have an appointment with your CPA at 10:00 am. You've worked hard all year to keep your information in order and you've done a pretty good job. There's only one problem - you sold about $100,000 worth of XYZ stock and you have no idea how much it cost.

This wouldn't be much of a problem if you made a hundred million this year, but in your case, the $20,000 you're going to pay in tax on a full $100,000 gain is serious money to you. What in the world are you going to do?

Believe it or not, as long as you can come close to the time you purchased the stock, you may be able to come close to the basis (your cost). Here are a few ways you may be able to satisfy yourself, the CPA and the Internal Revenue Service.

If you haven't really looked at it, take a look at the annual statement you received from your broker. Sometimes, your broker will include a cost basis statement with your annual statement. If your broker does this (most do), you may have the information and not know it.

What if your broker doesn't include the information you need? More to the point, why wouldn't they? Let's handle question two first. Brokers these days are very good at capturing the cost of anything that goes through their systems. However, if you bought that XYZ stock thirty years ago at Merrill Lynch and transferred it to Morgan Stanley two years ago, the computers at Morgan Stanley are going to laugh at you when asked how much you paid for the stock. The only good news is you won't hear them laugh.

It may be you bought the stock too long ago for the cost to be on your broker's computer. In that case, you should still call your broker. Even if the cost numbers weren't recorded on the annual brokerage statement, your broker may have the information you need in some other form, especially if you have been loyal to the same person over the last thirty years. If they can help, and I have never run into a broker who wouldn't help, your problem is solved. If not, warn them that there are any number of other brokers hunting for business, so they need to keep their chuckles to themselves and go to next step.

Not too long ago, most publicly traded companies found a wonderful new resource to reach out and touch their investors â?? the Internet. Many companies have web sites to attract customers, the media and their stockholders. More and more, these companies don't only put current information on their sites, but also historical information. For example, I was looking for information on AT&T stock during this filing season. I went to the AT&T website, entered the date I purchased the stock and presto! I had my stock price.

I was lucky; but it doesn't always work that way. Sometimes, the company has not gone far enough on their website to provide that detail of information. That's when you really have to start becoming a sleuth. You could call the company itself if you want and sometimes that makes a great deal of sense. However, the Internet still provides a number of ways to get the information you need. Most of the time it's free.

One of the things you can do is go to a website that provides stock information such as the Microsoft Network website ( If you follow the trail to get a quote on a stock you own, you will also note that it will give you a chart on the price changes in your stock. In most circumstances, you will probably be able to give the computer a date range that will allow you to pinpoint the selling price of your stock on the date you bought it. Again, I had a similar experience with a company that didn't keep a detail of daily prices the way AT&T did. I was able to find the price of the stock on the date my client bought it by referring to a charting program.

So, what happens if you can find the stock price, but you bought the stock before dinosaurs became extinct? You may say who cares, but the truth is that many people have become rich from purchasing 100 shares of stock in the early years of a corporation that have now become 100,000 shares through stock splits and dividends. The fact is that many large companies have issued stock dividends and splits over the years to affect the price of their stocks.

If you are in this position, congratulations and condolences. Those companies that have their stock prices listed on their websites will also have the history of those shares. Either the history of the stock will be included on the website for you to make your calculations or, if you are really lucky, the price quoted by the website will already take the splits, mergers and dividends into account. Be sure to read the fine print on the website to be certain you understand what you are getting.

Ok, you've talked to the broker and looked at each one of the billion plus websites on the Internet and you are still out of luck. What then? Call the company. Every major public company will have an investor relations department. If you call the company, you will likely find someone on the other end of the line someone who can help you.

This is true even of mutual fund companies. For example, I was working on a client one time that had no idea what his mutual fund basis was. He had bought it over a period of years, reinvested the dividends and moved enough times to lose most of his old statements. The best he could recall, he started purchasing the shares in the late 1960s. Ultimately, we contacted the mutual fund company and two weeks later we found that the client began investment purchases in the 1940s. Thank God for good records!

You may wonder why contacting a company might not be our first option. First, it is usually quicker to look the information up on the Internet. In my example, you will note it took two weeks to get the answer I needed from the mutual fund company. Second, it cost $150 and a letter from the client to get the information from the mutual fund company. It cost nothing to look the stock price for AT&T up on its website.

When it comes to searching for a stock's original cost, you may find it difficult when you have lost your original purchase ticket. However, you are not necessarily out of luck. There are numerous options available to you and we encourage you to search as best you can. Many times, however, you may not have the patience or expertise to navigate the web. If you become frustrated, give your CPA a call. Iâ?¦errrrrâ?¦he or she may have a relatively quick way to find the information you need.

One final note, as this article goes to press, U.S. soldiers are embroiled in a war for our freedoms. Regardless of your feelings toward the war, we are now there. Please keep our soldiers in your thoughts and prayers until they come home. Have a great April.


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