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Important Read if you Received an IRS Letter About Stock Sales

Some taxpayers may receive an IRS during the summer stating that information that was reported to them does not match what your tax return says. An example would be if you received interest income and forgot to include it on your tax return, the IRS would send you a letter that it was missing and you owe additional taxes. One common letter they often send to taxpayers is a letter stating that stock sales were not included on your return.

This notice you need to pay special attention to because the amount the IRS says you owe them is not often correct, it is overstated by a considerable amount. For example if you sold $50,000 worth of stocks and forgot to include them on your return the IRS will send you a letter stating you owe taxes on the full amount of the sale, which in this case is $50,000. But this is often incorrect, the IRS does not take into account what you originally paid for the stocks when you first bought them. So if you paid $49,000 for them and sold them for $50,000, you only owe tax on the $1,000 gain, not the entire $50,000 sale like the IRS states in their letter.

So if you do receive one of these letters make sure to double check their figures for the sales and then check your brokerage statement to get the correct cost. You will most likely need to amend your tax return to report the sales and also the cost. If you had a gain on your sales you will owe additional taxes but it should be considerably less than what the IRS states in their letter since they don’t factor in the cost. Also please keep in mind that you will probably have to amend your state return as well as your federal.

Please consult your tax advisor on all the above information.

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