An important financial record – your asset basis

Radio Transcript, 2 minutes 38 seconds, for use during week of Dec. 31.

Description:  Penny, Ira, and Susan talk about the importance of good financial recordkeeping

Announcer: Invest Wisely comes to you from Iowa State University Extension through a grant from the investor Protection trust, providing investor education on the web at: investorprotection.org.

Ira: Penny, I’ve read several articles that emphasize the importance of keeping good financial records.  And I do try to keep pretty good track of my investments, but are good records really so important?

Penny: Yes.  For example, if you sell an asset and can’t prove your basis, the regulations allow the IRS to apply a basis of zero which can cost you money.

Susan: So I need to know when I bought a stock and how much I paid for it?

Penny: You should also keep a record of whether the security was purchased, inherited, received as a gift or distributed when a company went from a mutual company to a stock company. 

Ira: What if I give the security as a gift rather than selling it?

Penny: When you give something as a gift, the recipient of the gift takes the same basis as yours.  So, it’s still important to know what the basis of that security is.

Susan: I’ve considered donating stocks to a charity.  Are there additional things I need to keep track of in that case?

Penny: If you donate stocks to a charitable organization you’ll want to keep track of what you donated, the date of the donation, the fair market value of the shares, your basis, and whether there are any restrictions on the gift.

Ira: How would I determine the fair market value of a stock?  Is it the price of the stock that day?

Penny: If it’s an outright gift, fair market value would be the sum of the opening price of the stock on that day plus the closing price, divided by two.  This, not the price the organization eventually sells the shares for, is what you’ll use for tax purposes.

Susan: Thank you, Penny.  This is very helpful.

Penny: You’re welcome.  And remember, for more information visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’