Capital Asset Record Keeping Requirements

During tax season, many of our clients ask about what records they should keep for capital gains and losses.

Before the 2011 tax year, it was enough for a taxpayer to report summary totals rather than the details of every capital asset transaction. Taxpayers previously could report capital gains and losses on Schedule D, utilizing “buckets” to report short-term and long-term capital gains and losses separately with summary totals of transactions during the tax year. Beginning with the 2011 tax year, a new form, Form 8949, Sales and Dispositions of Capital Assets, must be filed with your Form 1040. As many as six Forms 8949 may need to be filed with your Schedule D, and the completion of Form 8949 requires much more detailed information regarding your capital assets.

The details of every capital asset transaction for the tax year must appear on your return, and you must therefore maintain detailed records and be prepared to share this information with your tax preparer. In order to ensure compliance, be sure to maintain records of all brokerage transactions. Previously, it was enough to maintain a summary spreadsheet of such transactions, but we now recommend you maintain individual records as to each transaction, showing the details of all transfers made. These records should include monthly statements from your brokerage firm, documenting fees and commissions charged to you. It is helpful to separate the records into short-term (those assets you held less than one year) and long-term (those assets you held for longer than one year) categories. Our office will further organize your records to comply with the new reporting requirements. You should also maintain 1099-B forms received from brokerage firms. This will assist us in comparing your individual transactions with the year-end report to ensure the records are complete and accurate.

We also suggest that you maintain separate folders or computer files for each asset of significant value. In this folder or file, you will include any documents relating to the purchase of the asset, payments associated with asset, damage to the asset, date and purpose of any improvement made to the asset, and sale of the asset. You may also want to keep all depreciation tax documents and worksheets relating to each asset. Your tax preparer can point these documents out to you after your tax return is filed. Should you have any further questions on capital asset record-keeping, please contact our office.

Kim & Associates, PA
(410) 546-0552

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