Identification of stock sales

The stock market continues to have its ups and downs. Therefore, it’s not unusual for an investor to own shares of the same stock purchased at different times and different prices. How are tax gains or losses calculated when a few shares are sold?

When in doubt, the IRS assumes the first shares bought are the first ones sold. This is called the first-in, first-out (FIFO) method.

However, you don’t have to blindly follow the IRS approach. Instead of using FIFO, an investor can specifically identify shares of securities that you are intending to sell. This can produce a better tax result for a particular situation.

In fact, by specifically identifying the shares being sold, you may be able to turn a taxable gain into a beneficial tax loss.

How do you identify the shares that you’re selling? At the time of the sale, the investor must specify to the broker or other agent the specific stock to be sold. The stock being sold is identified by the purchase date, the purchase price or both. Make sure that a written confirmation is received.

If you’re an online trader who does not use a broker, you must maintain detailed records of the shares being sold.

Remember that stock identification must be made at the time of the sale. The way that you handle stock transactions can make a big difference in your tax bill. If you are contemplating a sale, we can provide the necessary assistance. Do not hesitate to contact our office and we would be glad to assist you.

Questions that arise when a loved one departs

What papers will I need?

Here is a list of the papers that you will probably need:

• Certified copies of the death certificate (at least 10). You can purchase them through the funeral director or directly from the county Health Department.
• Copies of all insurance policies — which may be in the deceased’s safe deposit box or among his or her personal belongings.
• Social Security numbers of the deceased, the spouse, and any dependent children.
• Military discharge — if the deceased was a veteran. If you cannot find a copy, write to The Department of Defense, National Personnel Record Center, 9700 Page Boulevard, St. Louis, MO 63132.
• Marriage Certificate — if the spouse of the deceased will be applying for benefits, Copies are available at the Office of the County Clerk where the marriage license was issued.
• Birth Certificates of dependent children. Copies are available at either the State or the County Public Health offices where the child was born.
• Will — which may be with the deceased’s lawyer.
• Complete list of all property — including real estate, stocks, bonds, savings accounts and personal property of the deceased.

Tip: If the death is not unexpected, you should try to gather these papers in advance (other than the death certificate, of course) to lessen the strain at the time of death.

What steps should I take regarding the deceased’s assets?

Check with your financial advisor as to how you should handle the following assets of the deceased.

Some general rules of thumb are:

• Insurance Policies. You may need to change the beneficiaries of policies held by the spouse of the deceased. (Moreover, if the spouse does not have any dependents, it might be wise to reduce the amount of life insurance coverage.) Auto and home insurance may also need revision.
• Automobiles. Check with your State DMV to see if the title of the deceased’s car needs to be changed.
• Bank Accounts. If the deceased and his or her spouse had a joint bank account, title will automatically pass to the surviving spouse. Notify the bank to change its records to reflect this change in ownership. If a bank account was held only in the name of the deceased, that asset will have to go through probate (unless it’s a trust account).
• Stocks and Bonds. To change title to stocks or bonds, check with the deceased’s broker.
• Safe Deposit Box. In most states, you will need a court order to open a safe deposit box that is rented only the name of the deceased.

Tip: In most states, only the will and other materials pertaining to the death can be removed before the will has been probated.

• Credit Cards. Any credit cards exclusively in the name of the deceased should be cancelled (and any payments due should be paid by the estate). As to credit cards in the names of both the deceased and his or her spouse, the surviving spouse should notify the credit card companies of the death and ask that the card should be reissued in the survivor’s name only.

Tip: You should update your own will if it provides that any of your property will pass to the deceased upon your death.

How can I avoid overpaying for the funeral?

The best way to avoid overpaying for a funeral is to plan ahead. Further, it pays to know about the “Funeral Rule,” the regulation of the Federal Trade Commission (FTC) concerning funeral industry practices. The Funeral Rule provides that:

• The funeral provider must give you, over the phone, price and other readily available information that reasonably answers your questions.
• The funeral provider must give you (1) a general price list, (2) a disclosure of your important legal rights and (3) information about embalming, caskets for cremation, and required purchases.
• The funeral provider must disclose in writing any service fees for paying for goods or services on your behalf (such as flowers, obituary notices, pallbearers, and clergy honoraria). While some funeral providers charge you only their cost for these items, others add a service fee to their cost. The funeral provider must also inform you of any refunds, discounts, or rebates from the supplier of any such item.
• The funeral provider must disclose in writing your right to buy, and make available to you, an unfinished wood box (a type of casket) or an alternative container for a direct cremation.
• You do not have to purchase unwanted goods or services or pay any fees as a condition to obtaining those products and services you do want. In addition to the fee for the services of the funeral director and staff, you need pay only for those goods and services selected by you or required by state law.
• The funeral provider must give you an itemized statement of the total cost of the funeral goods and services you selected; this statement must disclose any legal, cemetery, or crematory requirements for you to purchase any specific funeral goods or services.
• The funeral provider is prohibited from telling you that a particular funeral item or service can indefinitely preserve the body of the deceased in the grave or claiming that funeral goods, such as caskets or vaults, will keep out water, dirt, or other grave site substances.

Tip: If you have a problem concerning funeral matters, and cannot resolve it with the funeral director, contact your federal, state, or local consumer protection agencies, the Conference of Funeral Examining Boards, or the Funeral Service Consumer Assistance Program (FSCAP).

What Social Security benefits are the  surviving family members entitled to?

The deceased is considered covered by Social Security if he or she paid in to Social Security for at least 40 quarters. Check with your local Social Security office or call 800-772-1213 to determine if the deceased was eligible. If the deceased was eligible, there are two types of possible benefits.

One-Time Death Benefit

Social Security pays a death benefit toward burial expenses. Complete the necessary form at your local Social Security office, or ask the funeral director to complete the application and apply the payment directly to the funeral bill. This payment is made only to eligible spouses or to a child entitled to survivor’s benefits.

Survivor’s Benefits for a Spouse or Children.

If the spouse is age 60 or older, he or she will be eligible for benefits. The amount of the benefit received before age 65 will be less than the benefit due at age 65 or over. Disabled widows age 50 or older are eligible for benefits. The spouse of the deceased who is under 60 but who cares for dependent children under 16 or cares for disabled children may be eligible for benefits. The children of the deceased who are under the age 18 or are disabled may also be entitled to benefits.

If I receive distributions from a retirement plan or an IRA of the deceased, must I pay income taxes on the distribution?

Generally, yes. This is known as income in respect of a decedent. Since the deceased has not paid income tax on the distribution, the tax is owed by the recipient. If the value of the account was included in the decedent’s estate tax return, you may be entitled to a deduction for a portion of the estate taxes paid.

How will my spouse’s assets be distributed if he/she died without a will?

Assets held jointly with right of survivorship will transfer by law to the joint holder. Insurance policies or retirement accounts with a designated beneficiary will go to that beneficiary. Assets owned solely by the decedent will transfer according to state law. This is known as intestacy. These laws vary by state, but generally give preference to the spouse and children.