Occasionally I come across something in my industry that can only be the portent of bad things to come. Consider this excerpt from an email I received from my brokerage house:
As you may know, brokerage firms will be required to report to the IRS detailed cost basis, gain and loss, holding period and other tax information for the disposition of clients’ covered securities – i.e., stocks acquired on or after January 1, 2011. [Emphasis added]
In a moment, I will flesh out what this means and why it is an ominous sign, but first I want to emphasize two points:
- That the custodians of your investment assets are now REQUIRED to be functionaries of the IRS; and
- That, at least in the case of my brokerage house, this is being applied to QUALIFIED as well as non-qualified accounts (more on this in a minute).
The practice up to this point in time is that people who bought and sold securities in non-retirement accounts were required to keep track of the purchase price, purchase date, sales price and sales date of the securities in their portfolio. They also had to declare their capital gains or losses on their tax returns upon the disposition of those securities. One could argue the reasonableness (or unreasonableness) of capital gains taxes, but those were the rules.
But these rules did not reach to qualified (retirement) accounts, because when people took distributions from those accounts, they were not subject to capital gains taxes, but to income taxes. Yes, there were built up “gains” in these accounts, but since the securities were always sold before any cash distributions and since income tax rates were higher than cap gains rates, the government happily assessed the distributions at income tax rates.
It appears now that the government may be setting up the system by which they collect both capital gains and income taxes on qualified (retirement) accounts. Why else would they require custodians to report “detailed cost basis information” on these accounts? This may be the first stages of the planned changes to retirement account taxation that I wrote about earlier in this blog.
I think Mr. Franklin’s quote might more properly have been: “The only thing certain in life are death and HIGHER taxes.” Especially when a government goes about spending its people into a multi-trillion dollar debt notwithstanding the objections of all sane economists and the majority of the people.
So what is there to do? Well everyone needs to speak to their financial advisor or CPA to determine the immediate financial moves to consider. But, in truth, the greater issue is reigning in a government that has clearly stopped trying to “establish justice…and secure the blessings of liberty” for us and has become one that perpetuates the gravest injustices and destroys our liberty. Sooner rather than later, we better all stand up and say ENOUGH!