How to Figure out Your Cost Basis, and Other Tax Prep Tips

In my post earlier this week, I provided a few tips on how you can help your tax preparer to do a better job for you. Here are a few more simple things you can do to help them save you time and money.

Gather Cost Basis of Investments Sold
Cost basis is the purchase price, plus transaction fees, of the investments you own. You are required to pay capital-gains tax on the difference between the cost basis and your selling price, so the higher your cost basis, the less tax you'll owe (note: this only applies to holdings in your taxable, non-retirement accounts).

If you can't find the cost basis of investments you sold last year, assigning the task to your tax preparer can cost hundreds of dollars extra.

Your broker or financial firm should send you a 1099-B form summarizing all your investment sales. But if you did not originally purchase the investment at the firm, either because you purchased it at another firm and transferred it, or you received the investment as a gift, you'll have to find the purchase information to determine the cost basis. That can be hard to uncover if the investment was purchased a long time ago or transferred from a different brokerage. Long-held shares of funds or companies that engaged in spin-offs or mergers can also be hard to track.

Dumping this problem on your tax preparer will mean they will need to spend extra time to get this information, and they'll charge you for that time.

Instead, ask your financial firm where you purchased the investment to research their records for the cost basis information, or go through your records and statements and do it yourself. An alternative you might want to try is the cost-basis calculator in popular tax software products like TurboTax - they can sometimes download cost basis information for you if you know when you bought a given security.

Document Major Purchases
It's also important to tell your preparer about major purchases and expenditures such as those for a new vehicle, purchase of a home, refinancing of your mortgage, and even some major home improvements made in 2009. Doing so can save you real money.

In 2009 there are new tax credits for first time home buyers (up to $8,000), repeat home buyers (up to $6,500), and tax credits for energy saving home improvements (up to $1,500). There is also a deduction for Vehicle Sales and Excise Taxes paid for new vehicles purchased in 2009. If any of these things apply to you, here is what you need to do:

-Provide your preparer with a copy of the Vehicle Purchase Receipt which details the excise and sales taxes paid for a new vehicle you purchased.

-Provide a list of the improvements, description, and cost of any energy saving improvements made to your home in 2009.

Also, points, interest, and property taxes paid in connection with the refinancing of your mortgage or a home purchase can also be deductible. Give a copy of all three pages of the HUD-1 Settlement Statement, which provides amounts for these items, to your preparer.

Doing all these things will ensure your tax preparation goes smoothly, and could end up saving you plenty of money in the process.

Ray Martin

View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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