> A lot of asset sales should be or are reported by financial institutions, so in the case of me selling stock through Schwab or whatever, it should still be handle-able by the IRS.

Your financial institution doesn't necessarily know your capital gains. It reports stock sales to the IRS, but often doesn't report the cost basis because it doesn't know. Consider:

You buy 50 shares of ABC on Jan 1 2020. Then you buy 50 more shares on Jan 1 2022. Now you sell 50 shares of ABC on Jul 1 2022. Which bunch of shares did you sell? Was it a short term gain or a long term gain? Was it a loss? It depends. Neither your broker or IRS knows the answer, but you do.

EDIT: The above information is evidently out of date by about 10 years. TIL

> Which bunch of shares did you sell? Was it a short term gain or a long term gain? Was it a loss? It depends. Neither your broker or IRS knows the answer, but you do.

Your broker does know because you need to tell them which ones to sell when you sold.

The IRS also knows because that's included in the cost basis reported to them by the broker. (This changed some number of years ago, brokers used to only report the income from the sale but not the cost.)

https://www.spencerlawfirm.com/2011/01/new-cost-basis-report...

I should add to this, even though the broker reports the cost basis, be proactive in verifying that it is correct.

For reasons I can't comprehend, ETrade reports the costs basis wrong every single year on all my RSU and ESPP sold shares. They do issue a supplemental report which has all the correct info, but the 1099-B has it wrong. It is maddening. I need to send both the 1099 and the supplemental doc to my CPA so things are accounted correctly, otherwise I'd pay a lot more taxes due to ETrade errors.

All other brokers I deal with do it correctly.

Interesting. I learned something today. Thanks.

...and therefore there is even less reason for the IRS to not pre-fill forms or just have an exception-based filing system vs everyone has to file regardless of exceptions / amendments / challenges etc.

What about including the free market of tax helper systems and services? You'll be wiping out an entire industry - doesn't seem very conservative to me.

We should bring back the entire industry of leech breeders and sellers for bloodletting, too.

I've only been trading stocks since 2005ish, but all the brokers I've dealt with have had ways to tell them which shares I was selling. And if I didn't pick them, they'd pick for me. Nowadays, they're required to track cost basis for regular shares. Even if you have shares where they won't report a cost basis, you're supposed to tell them which shares you're selling before the transaction settles.

Employment compensation related shares get weird, but they will at least track the purchase date or the date it entered their system anyway.

In recent years by law the brokerage company tracks the lots you buy and when you sell you can select which to sell. The gains are reported accordingly on the forms the brokerage company sends at the end of the year.

Things get more complicated when you are trading the same security across different brokers because they can’t detect wash sales. The IRS has the information to detect was sales.

Still true for cryptocurrency, and still true that you have latitude over whether to do it as FIFO vs LIFO vs specific lots.

Edit: To pre-empt some replies: yes, centralized exchanges will report sales but they won't always know your cost basis, and a lot of the trades will happen on-chain, which definitely isn't automatically reported.

To be clear, I support the IRS doing as much as the filing as possible, and I agree these issues aren't dealbreakers, but please don't make the situation look different than it really is.

1. If the IRS handles it without reporting they assume that your sell LIFO for the worst possible capital gains treatment.

And as long as it's just the default, who gives a shit?

Besides, as others have pointed out, there are ways to specify at the time of the sale. That's what Schwab does when I sell stock there.

In the theoretical new system, you could have an option to file additional elections or changes. The IRS would have a default that you could then vary if you chose.

The brokerages permit election of the method and can easily be made to report that along with the other details

Vanguard gives me an option on how to treat capital gains for tax purposes.