Cost Basis Reporting: Additional Revenue for Tax Professionals?

by Alexander Camargo,  Isabella Fonseca, April 25, 2012
Industry Trends
North America

Abstract

Challenges related to disparate cost basis reporting procedures between retail investors and brokers provide opportunities for tax professionals to extend their services and aid retail investors. New services may generate close to $450 million in additional revenue for tax professionals by 2015.

In a new report, Cost Basis Reporting: Additional Revenue for Tax Professionals? Celent explores how disparate cost basis reporting procedures between retail investors and brokers have created significant challenges for retail investors reporting their tax returns to the IRS. These challenges will provide tax professionals with an opportunity to step in and provide valuable tax preparation and consultation services for investors.

While much of the industry analysis has focused on challenges for brokers, there has been little focus on the challenges retail investors will now face with respect to reporting cost basis to the IRS. While filing new forms, such as the updated Schedule D and Form 8949, is a challenge in itself, retail investors are finding that their reporting data does not match their broker’s 1099-B data.

“In order for retail investors to comply with what is now required of them in the new cost basis reporting regulations, they must rely on brokers supplying accurate information on the 1099-Bs,” says Alexander Camargo, Analyst with Celent Securities & Investments group and coauthor of the report. “Unfortunately, retail investors are finding that they cannot reconcile the information on broker-provided 1099-Bs with their own Schedule D and 8949 calculations.”

This lack of harmonization is the result of having a gap between what is required of the broker and what is required of the investor, and this has created an opportunity for tax professionals to help investors by researching and reconciling differences between 1099-Bs and Form 8949 calculations.

“With over 25 million households having investment accounts, tax professionals have a remarkable opportunity to extend their relationships with their clients,” says Isabella Fonseca, Research Director with Celent’s Securities & Investments Group and coauthor of the report. “Services around guiding tax return filings provide an opportunity for tax professionals to not only supply accurate cost basis information, but also to segue into a larger relationship, where CPAs and professionals can offer a fully 'tax efficient' strategy as it relates to all of their financial holdings.”

This report begins with a discussion on what the new cost basis requirements mean for the retail investors and explores the challenges that they may face. Celent then examines the types of services currently offered by tax professionals and defines the market opportunity for tax professionals, providing high and low estimates related to potential revenue for services. Finally, Celent discusses how technology can help brokers, investors, and tax professionals address many of the challenges posed by cost basis reporting.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Introduction

4

 

Challenges for Cost Basis Reporting

4

 

Disparate Reporting Requirements Between Brokers and Investors Creates Challenges

4

Other Retail Investor Challenges

6

Tax Services for Retail Investors

9

 

Types of Services

9

 

Fees

10

 

Partnerships

11

Market Size and Revenue Opportunity

13

 

Market Sizing and Revenue Opportunities

13

 

Total Revenue Opportunity

19

 

Opportunities to Expand Relationships with Value-Add Services

19

Solutions to Better Service Clients

21

Appendix

23

About This Report

24

Leveraging Celent’s Expertise

25

 

Support for Financial Institutions

25

 

Support for Vendors

25

Related Celent Research

26

Sign in to download reports and access personalized information