1099-b

[Ken]

I mentioned this the other day but I am still stressing about it and I would like a little input from some of you who have delt with this more than I have.
I have a client who recieved a 1099-B (proceeds from broker and barter exchange transactions).
It lists a total sale of $242,678 in stocks. My client says she never recieved the money. She said the bank re-invested it.
It was three different funds origionally. her basis in the three funds origionally was $85,000.
I had her go back over the years since 1992 and add up all the dividends and intrest she had paid taxes on and then I added that to the 85000 dollars.
I then subtracted that amount off the 242,678 dollars and added the remainder as capital gains. She owes 16,000 dollars.
Have I forgotten anything? I am really stressed to have to tell her she ows so much money.
Thanks for any help.
Ken

[OldJack]

You are on the right track. She gave permission (either specifically or prior) for the bank to sell the stocks at a gain and therefore should have known that she would owe taxes.

Don't feel bad about her owing taxes as she can always take part of the money out of the investment to pay the taxes. You didn't cause the tax bill she did.

The bad thing is that she made a huge profit to pay taxes.

The good thing is that she made a huge profit to pay taxes.

[JCH]

Don't stress on this. It was your client's decision to sell the stock. Congratulate her on herinvesting skills, and emphasize that the long term capital gain rates is one of the lowest rates of paying tax.

[Ken]

another question

I have another question. Part of my clients investment was origionally from something called the Aquila tax free trust of Az. class A.
She said that she was told that she did not have to pay taxes on this, however the tax preparer she used before me always added the intrest and dividend amounts in just like any other intrest and dividends.
Do any of you know anything about tax free trusts?
Boy this all makes a barber want to pull his hair out.

[JoshinNC]

Municipal interest and dividends are tax free,

I have another question. Part of my clients investment was origionally from something called the Aquila tax free trust of Az. class A.
She said that she was told that she did not have to pay taxes on this, however the tax preparer she used before me always added the intrest and dividend amounts in just like any other intrest and dividends.
Do any of you know anything about tax free trusts?
Boy this all makes a barber want to pull his hair out.

However, capital gains on the underlying investment are still taxable, as either a short or long term CG.

[Ken]

tax free trust

Thanks Josh. The problem is my client had three different investments when she started out. When she would get a year end statement every year it only listed the total dividend and intrest. So I dont know if the tax free trust is included in that total or since its tax free, maybe they never even listed it.
Come to think of it there was an amount listed as tax exempt intrest of 3,000 dollars so that might come from the tax free fund.

[JoshinNC]

the brokerage should be able to provide that info

Thanks Josh. The problem is my client had three different investments when she started out. When she would get a year end statement every year it only listed the total dividend and intrest. So I dont know if the tax free trust is included in that total or since its tax free, maybe they never even listed it.
Come to think of it there was an amount listed as tax exempt intrest of 3,000 dollars so that might come from the tax free fund.

give them a call, or have the client call

[taxea]

1099b

I am familiar with these funds. The interest and dividends should be entered as tax free. The Avila funds that I hold are not taxable at all...not even the gain.
You need to look at the prior years returns to see whether they were reported correctly, if not they need to be amended to correct the error/s. taxea

[Bees Knees]

I am familiar with these funds. The interest and dividends should be entered as tax free. The Avila funds that I hold are not taxable at all...not even the gain.

Income earned on tax free investments may not be subject to tax, but the gain on the sale or exchange of such investment is always subject to tax. The only capital gains that can be excluded from income are Section 121 gains on the sale of a principal residence, and the various like kind exchanges of business and investment property, involuntary conversions, insurance contracts, transfers incident to a divorce, and small business stock under Sections 1031 through 1045.

A sale or exchange of a tax free municipal bond would not fall into any of the above categories.

[JoshinNC]

My thoughts too.

Income earned on tax free investments may not be subject to tax, but the gain on the sale or exchange of such investment is always subject to tax. The only capital gains that can be excluded from income are Section 121 gains on the sale of a principal residence, and the various like kind exchanges of business and investment property, involuntary conversions, insurance contracts, transfers incident to a divorce, and small business stock under Sections 1031 through 1045.

A sale or exchange of a tax free municipal bond would not fall into any of the above categories.

TaxEA, you might want to call your broker. Uh Oh!

[DixieEA]

agree

I agree with Josh and Bees Knees

DixieEA