With new cost-basis reporting requirements in effect for the 2011 tax year, Charles Schwab is warning investment advisors to brace for a hectic tax season and prepare for a flood of questions from clients who will receive for the first time a revised Form 1099-B packed with new transaction information.

The first phase of the new rules will require custodians, broker-dealers and others to report the cost basis for all equities purchased on or after Jan. 1, 2011, on the new 1099-B to the IRS and clients. That means that in mid-February, millions of investors will receive an unfamiliar version of a vital tax document.

Under the legislation, the default method for brokers to calculate cost basis is first-in, first-out. Clients or their advisors can designate an alternate method (last-in first-out, lowest price to highest, etc.) either as a default or for specific lots, but once a trade settles, the method cannot be changed. That method lock-in will also have implications for how advisors engineer tax-sensitive investments.

- Kenneth Corbin



Three quarters of small-business owners believe that so many Americans are financially unprepared for retirement that the problem has reached the level of a crisis, but just under a fifth of them actually offer their employees a 401(k) or similar plan, according to a survey of 501 small-business owners by Harris Interactive, on behalf of Nationwide Financial.

Only 11 percent of the small-business owners surveyed said that they are likely to add an employee-sponsored 401(k) plan within the next two years. Sixty-nine percent said that their business was too small, and more than half said such a plan would be too expensive.

Thirty-seven percent of the business owners with more than six employees said that they are under pressure from employees to offer a retirement plan. Four in five said that having a retirement plan was also effective in helping them attract qualified employees.

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