Below is a commonly quoted financail column from a major newspaper, with experts addressing when a worthless stock MUST be taken on your tax return.
As I have frequently noted, it is not a matter of when it can or can't be traded it is when it becomes worthless (ya' think costs more to sell than you get qualifies?)...and with SPNG for most, that will be a PRIOR YEAR.
My parents have several stocks that have no value because the companies have gone out of business. They have no idea when they were bought or how much they paid for them. Is there any way to write off their losses on their tax returns?
A. It’s all about the documentation. Worthless securities are treated as sold on the last day of the tax year in which they became completely worthless, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights.
"In your parents’ case if the shares became completely worthless during 2011 they would include them on their Schedule D and they would indicate in the sales price column the word ‘worthless,’ " he said.
However, if these stocks became completely worthless in a prior tax year, your parents need to file an amended tax return in order to claim the losses.
But it’s not that simple, said Maye, because your parents need to know what they paid for the stocks to take the loss.
Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence, agrees.
"Without proper documentation to support what the cost basis — how much was paid — for the stocks, your parents will not be able to claim the losses on their tax returns," Lassus said.
For stocks that truly have no value and can be deemed "worthless," the amount of the loss that can be claimed would be equal to the stock’s cost basis. This cost basis equals the amount paid for the stock including any commissions paid, as well as any reinvested dividends, Lassus said.
There is no valid way to determine the amount of the loss that can be claimed without knowledge of and proper documentation supporting the cost basis for these stocks.
Not all is lost — if you or your parents are willing to do some research.
"If your parents purchased any of the stocks through a broker, you may be able to contact them to request that they provide the purchase history for these stocks in order to determine cost basis," Lassus said. "In addition, if your parents have stock certificates for any of these holdings in their possession, you may be able to determine cost basis if historical price quotes are available for any of the stocks for the date of the stock certificates."
Lassus says you need to also know a bankrupt company doesn’t necessarily equate a worthless stock, according to the IRS.
E-mail your questions to ask biz @starledger. com.