2849: Tax Basis For Beginners by Sean Mullaney of FI Tax Guy on Double Taxation & Clarifies Taxable Gains

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🗓️ 31 August 2024

⏱️ 11 minutes

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Summary

Discover all of the podcasts in our network, search for specific episodes, get the Optimal Living Daily workbook, and learn more at: OLDPodcast.com. Episode 2849: Sean Mullaney of FITaxGuy.com demystifies the concept of tax basis, illustrating how it prevents double taxation and clarifies taxable gains. Learn the essentials of depreciation, the benefits of a step-up in basis at death, tax loss harvesting strategies, and the unique considerations for basis in retirement accounts. Read along with the original article(s) here: https://fitaxguy.com/tax-basis-for-beginners/ Quotes to ponder: "Basis is what allows us to measure the appropriate gain or income to the seller of property." "The tax basis of inherited assets is 'stepped-up' to the fair market value of the asset on the original owner’s date of death." "Tax loss harvesting is a neat tool in the tax planning toolbox." Episode references: Internal Revenue Service: https://www.irs.gov Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	This is Optimal Finance Daily. Tax Basis for Beginners.
0:05.0	By Sean Malaney of Phi Tax Guide.com
0:09.0	and I'm your host and personal finance enthusiasts Diana Miriam.
0:13.0	We're going to jump right into our next post as we optimize your life.
0:17.0	Tax Basis for Beginners by Sean Malaney of Fy Tax Guide.com.
0:28.0	What is Tax Basis? To answer that question, let me posit two hypotheticals. Hypothetical 1. Mark buys
0:38.6	one share of Acme Industry's stock for $100 on Monday. The following Monday he sells that share for
0:46.7	$100. Hypothetical 2. Judy buys one share of chromerica Industries for $20 on Monday.
0:56.0	On Thursday, Chromerica Industries announces the release of a new bottle that dispenses both
1:02.1	ketchup and mustard and the stock soers.
1:06.2	On the following Monday, Judy sells her share of Cramarica Industries for $100. What tax results? Do both Mark and Judy have $100 of taxable income? Of
1:19.2	course not. We know that Mark has no taxable income and Judy has $80 of taxable income.
1:27.0	But how do we know that?
1:29.0	The answer, Basis.
1:31.0	Basis is the tax concept that ensures amounts are not taxed twice when they shouldn't be.
1:38.8	In Mark's case, he has no real income when he sells the stock.
1:43.4	Judy, however, does have income.
1:46.6	When she sells the chromarica stock,
1:48.9	she realizes the $80 game.
1:52.2	Basis is what allows us to measure the appropriate gain
1:56.2	or income to the seller of property.
1:59.7	While we have a sense that Mark should not have had taxable income and Judy should have. Without basis we have no way of
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