how to buy stocks online | STOCK BUYING: KEEP YOUR OWN RECORDS FOR TAXES

It is tax season and I have been gathering all the information I will need to file my 2011 taxes. This has gotten me to thinking that when you start buying stocks, you have two choices:

1) rely totally on the hope that your online broker will keep accurate records of your buys and sells for taxes or

2) keep records yourself.

Whenever you sell an individual stock in your portfolio, you will need to report it on your 1099 form at tax time. Depending on your gain (if you have one) you might also owe taxes on that sale at the end of the quarter as well. For either of these scenarios you will need to remember what price you paid for the stock and what date you bought it.

It used to be that all brokers sent you a trade confirmation in the mail of every stock you bought and sold. That still might be the case but there are too many of these brokers for me to know if they all operate the same. I have always made sure to keep those trade confirmations in one place, making sure I never lose or misplace them because that was my only record of the transactions.

Now days with the Internet, you can usually get all that information online and that makes it very easy and convenient come tax time. However, I still keep a manual record of everything I do (buy and sell) just in case something goes wrong with the record keeping of my online brokers. After all, the IRS wants their money and they are NOT going to take any excuses from me or anyone else that I lost my records.

The way we do so many financial things has really changing with the Internet. For example, I used to faithfully balance my checkbook every month just to make sure everything balanced to the penny. But I don’t even write things down in my checkbook ledger anymore much less balance things as it is all online now. I just periodically go online to look at my accounts to see if everything looks alright but I have become completely reliant on the accuracy of online banking. I’m sure many other people are the same way.

The way things are now, it is easy to become too trusting that all the information you need will always be online. With stocks though, I want to be sure I keep my own records too, just in case. I get each buy or sell transaction sent to me by my online broker (you could screen print them as well) and I keep everything in one place. Anytime the IRS is involved I want to make sure I have everything backed up if ever the online record keeping fails. You don’t HAVE to do that but when it comes to the IRS, I want to have my bases covered.

What you decide to do is up to you but you need to know that when you start buying stocks you will have to deal with record keeping and tax consequences. The more stocks you trade every year the more organization you will need.