Understand basis to save tax dollars
Basis is an important tax concept. The most recent reminder of the importance of getting basis right is the 2015 law that requires executors of some estates to report basis information for assets transferred to beneficiaries. Taxable estates that filed an estate return after July 31, 2015, must file a new form, which is due 30 days after the estate return is filed or by June 30, 2016, whichever is later. The beneficiaries, in turn, must use the information to calculate gain or loss when the inherited asset is sold. Basis also affects the amount of depreciation and amortization your business can claim, the gain you report when you sell investments, and how much of your individual retirement account (IRA) distributions is taxable.
So what is basis? The answer depends on the way you acquired property. For business assets, basis is usually what you paid, including sales tax and freight, less any tax credits taken. The basis of stocks you purchase is your cost, plus commissions. Basis in your IRA is generally the amount of after-tax contributions you made. Knowing your basis in these situations can reduce the amount of tax you owe. For more information on how to calculate basis, contact us.