Have a Tax Question? Ask a Tax Expert
Hi, my name is Mark. I will be happy to help you with your questions. Please give me a moment to prepare your response.
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%.
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.
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.
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.
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.
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It was my pleasure. Good luck with everything.