Capital gains changes make Schedule D more complex than ever
(RIVERWOODS, ILL., January 20, 2004) – Investors needn’t fear the new, longer, more complicated Schedule D that they will face this tax season – if they use GainsKeeper, the automated tax lot service from CCH INCORPORATED (CCH), a leading provider of securities information and software and a Wolters Kluwer company. In addition, professional traders will find that this year GainsKeeper can speed the completion of IRS Form 4797, required for traders who use mark-to-market accounting. Web-based GainsKeeper is available through individual subscription at gainskeeper.com and is offered by many investment firms, financial advisors and CPAs.
GainsKeeper’s Tax Center Tackles the Schedule D
The Tax Relief Act of 2003 offers the benefit of lower long-term tax rates for those capital gains realized after May 5, 2003, but Schedule D, used to report capital gains, is now more complicated than ever before, according to Peggy Hayner, market manager for CCH’s business and finance group.
“Because the change took effect midstream, this year’s Schedule D requires not only traditional tax lot matching, but also post-May 5 capital gains characterization. As our users have come to expect, GainsKeeper takes care of all those details automatically,” Hayner said.
Clicking on the Tax Center tab in GainsKeeper is the first step to simplifying the Schedule D. From here, GainsKeeper’s tax lot accounting classifies capital gains and losses pre/post May 5 and even populates the actual IRS Schedule D. It alleviates the tax challenges facing investors by automating cost basis adjustments resulting from wash sales and corporate actions such as stock splits, mergers and spin-offs.
Other new features for Schedule D filers include adding prior year loss carryover figures to the current year Schedule D and the ability to export capital gain/loss figures to the most popular tax preparation products.
“With the changes in tax law made earlier this year, it’s more important than ever that investors have access to the kinds of information and tools that GainsKeeper provides – accurate cost basis, capital gain tax lot data, wash sale and trade decision tools that lead to better after-tax results,” Hayner said.
Mark-to-Market for Traders
For those investors who qualify as “professional traders” under the tax laws and filed for a mark-to-market election last year, GainsKeeper now also provides mark-to-market tax lot accounting.
When taxpayers make the mark-to-market election, the IRS treats their capital gains and losses as ordinary income and loss. They report the gains and losses on Form 4797 (sales of business property), not Schedule D (capital gains and losses).
Professional traders are exempt from the wash sale rules, which requires that an investor who sold shares in a security at a loss and within 30 days purchased a substantially identical security defer the loss for tax purposes, and offset the deferred loss with a wash sale cost adjustment on the newly acquired tax lot. However, they lose the benefit of long-term characterization, which would allow them to take advantage of the lower capital gain/loss rates for long-term investments. Thus gains and losses are treated as ordinary income or loss.
In addition, they need to mark all year-end holdings to market values as of December 31 and re-open the tax lot in the next tax year.
“GainsKeeper handles all this for them. It even generates an income/loss report to supplement their IRS Form 4797s,” Hayner noted.
Professionals who made the mark-to-market election for this tax year simply use the ‘MTM’ account type when creating their brokerage accounts in GainsKeeper. The rest is handled automatically.
GainsKeeper is the leading provider of automated tax-based financial tools and services for the investment community, and is a division of CCH INCORPORATED.
Individual investors and professionals seeking cutting-edge investment tools and automated portfolio tracking services, including accounting for investment cost basis adjustments and capital gain/loss calculations, can access GainsKeeper directly via the World Wide Web at www.gainskeeper.com.
GainsKeeper Institutional Services (GKIS) provides ASP solutions for financial institutions, enabling its partners to offer sophisticated tax lot accounting to their customers without incurring the high cost of building, maintaining, and housing the systems and operations necessary to provide institutional-quality service. GKIS serves the brokerage, mutual fund, and fund administration industries, providing solutions ranging from back-office outsourcing to fully integrated Internet-based tools and services. Additional information is available at www.GKIS.net, via e-mail to firstname.lastname@example.org, or by calling 617-472-3314.
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care, and small business markets. CCH is a Wolters Kluwer company. The CCH web site can be accessed at cch.com. The CCH Business and Finance Group web site can be accessed at business.cch.com.