The ordinary American should be careful. The taxman is prowling around – knocking at the slightest hint of suspicion or error. The result could be not only taxes but penalties also. Unemployment benefits can be taxed. Loan amounts forgiven can be taxed. For the self-employed the spending must be in proportion to the income that is shown. And foreclosures and unemployment are directly related.

Lately the focus has been on accounts kept in overseas banks. Maureen McGetrick of BDO Seidman said, “Foreign bank accounts have been all over the press lately — it’s definitely a big thing this year. People need to make sure they indicate on their tax returns if they have one, and make sure they include any interest income from that bank account on their returns.”

She elaborated that those filing tax return must give details of all bank deposits maintained outside USA that is more than $10,000.

Stock selling raises another tricky issue. One has to be careful with the basic cost. Suppose the stocks were given by a grandparent in 1987. To sell them one has to hunt down the original price at which these were purchased – irrespective of how far back one has to journey for it. Any unreasonable stock value that is reported may result in the IRS taking away double.

It is vital to know the date of the stock purchase since it is the basis of its cost – the purchasing price including commissions and adjustments like stock splits would be calculated. Ultimately it will give the information to the IRS as to how much profit has been made when it was sold.

Professor Robert Willens of Columbia Business Schools and President of Robert Willen LLC (tax consulting firm) said, “A lot of people, when they sell a stock, particularly if they aren’t regular traders or active investors, won’t know the basis of the stock. Maybe it was received as a gift or they bought it a long time ago, so they’ll make it up.”

But finding out the original price is no easy task. The actual price has to be determined and for this one has to verify with the broker, hire an accountant or call upon the grandparent who might now be suffering from loss of dementia.

For those making donations one should not forget to get a receipt. There are many who show they have made many large donations and apply for deductions on returns. The zone is dangerous – more so if the donation is proportionately large compared to the income shown.

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