Whenever you are referring to matters that deal with taxes, a covered security is any investment security that a broker must report asset’s cost basis to the IRS, as well as to the owner. Included in this are many types of stocks, any fund shares, commodities, notes, or bonds. Any security that falls in the class of federally imposed exemptions is considered a covered security. Most of the stocks that are traded throughout the United States fall under this category, making them covered securities. These securities are sometimes also called, “federal covered security.”
Whenever you take a closer look at breaking down covered securities, you will find that they were originally developed with the intent to set a standard of security regulations and standard of filings throughout our nation. Instead of making every individual company in the country register, file, and comply with the varying regulations in every state, a national standard was set.
Federal legislation has made it so that a covered security is a security that is listed or authorized for listing on the New York Stock Exchange and comparable stock exchanges. That inmeans this also includes the American Stock Exchange, the Nasdaq National Market, or a national securities exchange with similar listing standards to those other exchanges. This would also cover any future exchanges that meet these specific criteria.
Covered securities also extend to classes of securities that are issued by an investment company that is registered or has filed a registration statement under the Investment Company Act of 1940. The designation of covered securities extends to the sale of those securities to qualified purchasers as defined by the Securities and Exchange Commission.
It is important to realize that the designation of covered securities plays a role in reporting your taxes. Brokers are required to report to the adjusted costs basis, to the IRS, when those securities are sold. This must be reported on Form 1099-B. Taxpayers who sold covered securities must also report the transactions with their tax filings.
When you are dealing with a complex tax filing, due to covered securities, or some other financial situation, contact King Financial Services. We help our customers file accurate taxes without worry of paying too much or getting in trouble with the IRS. If you are a business owner, or simply filing personal taxes, do not hesitate to contact our office. We work with our clients to ensure they are prepared for tax season and have everything in line to file as smoothly as possible. We understand that taxes can be stressful, especially with evolving laws, this is why we work closely with our clients to make sure all of their needs are met.
Sandra King is an enrolled agent, empowered by The United States Treasury to prepare your personal or business tax filing. While her services are offered nationwide, Sandra King locally serves the greater Dallas-Fort Worth area, including but not limited to Arlington, Bedford, Colleyville, Euless, Fort Worth, Grand Prairie, Hurst, Mansfield, North Richland Hills, and Richland Hills.