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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2283
Experience:  Certified Public Accountant
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In 2014 we sold some assets in my moms account to purchase

Customer Question

In 2014 we sold some assets in my moms account to purchase other better stocks with better dividend returns as per advisement of our broker. The assets sold were over 20 years held. IRS hit us with a tax bill and penalties due to the brokerage firm not reporting correctly the cost basis and incorrect 1099. First, i am reading if you have a low income which my mom does, that there is not tax to be paid on long term gains. Is that true? i read no, only for short term gains. Also since this was a brokerage firm tax reporting error, who is responsible to pay the penalties and fines?
Submitted: 10 months ago.
Category: Tax
Expert:  Mark Taylor replied 10 months ago.

Hi, my name is Mark. I will be happy to help you with your questions. Please give me a moment to prepare your response.

Customer: replied 10 months ago.
ok thanks
Customer: replied 10 months ago.
Expert:  Mark Taylor replied 10 months ago.

It sounds like all of the gains should be reported as long-term capital gain. If the IRS does not have the basis information they will assume that your received the stock for free and it is a short term gain. To correct this you would need to file an amended return with the correct basis.

The long-term capital gain tax rate ranges from zero to 20%. If you are in the 15% bracket or below the gain would be taxed at 15%. If you are in the 25% bracket the capital gains rate increases to 15%. This would change with adjusted gross incomes above $300,000 to 20%.

Customer: replied 10 months ago.
what is the rate for reported income of less than 20K? 0% ?
Customer: replied 10 months ago.
Also, who would be responsible for penalties and fines added if this was a total error on the brokerage firms side.
Expert:  Mark Taylor replied 10 months ago.

The 15% bracket ends at approximately 35,000 of taxable income for a single individual. If that is all your Mother had she would fall in the 15% bracket and the gain, if long-term, would not be taxable unless it was more than $15,000.

Expert:  Mark Taylor replied 10 months ago.

Does the $20,000 include the capital gain. How much was the capital gain? Unfortunately the brokerage firm is not responsible for the penalties and interest. Based on what you are saying there may not be a penalty. Penalties would only be assessed if there are taxes that are due.

Customer: replied 10 months ago.
basically it depends on the amount of the gain too? Also, if you have any idea due to the error of the brokerage firm are they responsible to pay the fees and fines?
Customer: replied 10 months ago.
the irs brochure did not stipulate amount of the gain as far as what percentage is taxed sounded like if you have a low income you pay 0.
Customer: replied 10 months ago.
oh sorry i did not read your first response. why would they not be responsible. it was there error. my mother filed whatever was given to her. If it was not correct why should she pay the penalty. The 20K does not include any capital gains.
Expert:  Mark Taylor replied 10 months ago.

Yes, tax bracket is determined by your taxable income. So this would be after your standard deduction / itemized deduction and her personal deduction. So for the gain to be taxable your Mother would need to have $45,000 of income (including the capital gain). Let's assume that your mother had 20,000 of taxable income before the capital gain and she had $30,000 of gains. Estimating the standard deduction and personal exemption to be a combined $10,000 she would have a taxable income of $40,000. $5,000 of the gain would be taxed at 15%. These amounts are rough estimates. The actual amounts are slightly different.

Expert:  Mark Taylor replied 10 months ago.

There is a box that they usually check if they did not have the basis information to report to the IRS. The brokerage firm is going to say that they were not responsible for reporting the correct information on the tax return.

Customer: replied 10 months ago.
ok thank you so much for your help!
Expert:  Mark Taylor replied 10 months ago.

I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.

Customer: replied 10 months ago.
Expert:  Mark Taylor replied 10 months ago.

It was my pleasure. Good luck with everything.