How a $130,000 Tax Mistake Became a Priceless Lesson on Stock Transactions - Palma Financial

A recent client approached us, burdened with a daunting $130,000 tax bill due to unreported stock sales. Every investor must remember that all stock sales must be reported, as the IRS receives 1099 forms from all brokerage firms.

The case became even more complex when the brokerage statement did not indicate any basis for the stock, resulting in the full amount being reported as a gain. After a thorough investigation, we discovered that this stock was granted by the client’s employer, a publicly traded partnership.

Here comes the twist – the client’s W-2 didn’t mention the stock compensation. This crucial detail was found on the pay stub, which the company’s general counsel’s office kindly provided. As it turned out, the company withheld shares, meaning the remaining stock had a full basis of the FMV at the time of the award.

Armed with these insights, we challenged the IRS’s determination, succeeding in erasing the $130,000 tax bill from our client’s account.

Here are the vital lessons from this journey:

Always Report Stock Sales: The IRS keeps track, and so should you.

Understand Your Stock Basis: It can greatly affect your tax liability.

Scrutinize All Documentation: Pay stubs, W-2s, and company letters can hold vital information.

Seek Assistance: When in doubt, consult with a tax professional.

Challenge IRS Determinations: Don’t hesitate to question if the numbers don’t add up.

The slightest misstep can lead to sizeable challenges between stock transactions and taxation. Ensure you’re on the right track by understanding these complexities, and contact us.

To schedule your tax assessment or learn more about our services, click here, reply to this email, or call us at (850) 829-3733