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Taxing Considerations

For many of our members with investment accounts, 2012 turned out to be a profitable year. The broad market had an above average year and this may have resulted in taxable gains for our investing members.

IRS Form 1099

Each year Pershing, LLC. (the custodian for brokerage accounts available through CUSO Financial Services, L.P.) will issue a Form 1099 for your non-qualified investment accounts. If "draft" appears on the 1099 form you receive by the end of February, you will receive an updated 1099 by mid-March.

We frequently see two common mistakes when it comes to investing and taxes:

  1. Members fail to include the data from their 1099 form on their tax returns. Often times this is an oversight and the member simply forgot to provide the 1099 to their tax-preparer. This will result in a deficiency notice from the IRS at some point in the future - usually one to three years later. You will need to file a corrected tax return to fix the deficiency.
  2. The other common mistake we see is when members fail to provide for the cost basis of an investment which was sold or matured during the year. For example, if you bought an investment for $10,000, your initial cost basis is $10,000. If you later sold your investment and realized $12,000 on the sale, you would have a profit of $2,000 - which in most cases would be taxable. However, if you fail to tell the IRS that your cost basis was $10,000 - they may assume a cost basis of zero - and require that you pay taxes on the full $12,000.

Cost basis accounting can be confusing. If you are having trouble, don't hesitate to contact our CFS* Financial Advisors, Dennis Adams and Stephen Seewer. They can assist you in obtaining the information your tax-preparer will need to complete your return. With your permission, they can even work directly with your preparer to provide the needed details.

If you ever receive a notice from the IRS pertaining to your Pershing/CUSO account - don't panic. Send a copy of the notice to your tax-preparer and contact Stephen and Dennis to gather the requested information.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. SF Fire Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

CFS and its Investment Representatives do not provide tax advice. Please consult with a qualified tax professional prior to making tax related decisions.