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If you are like most brokerage customers, you have gotten a mailing recently warning you about the scary new rules for determining the cost of stocks you sell. What’s going on? This guidebook will explain. It may also motivate you to invest in companies like Wolters Kluwer and Intuit.

What does “cost basis” mean?

It’s a fancy way of saying “cost, adjusted up or down.” If you buy 100 shares of Potlatch at $34 plus a $9 commission, then your basis is $3,409.

There are several reasons why a cost might be adjusted for a stock. If you get a dividend marked “return of capital,” the dividend is not taxable but you are supposed to adjust your cost downward. If your company splits in two (with a spinoff, for example), the old basis is apportioned pro rata to the pieces. On rare occasions a closed-end fund will engage in weird transactions that cause your basis to go up.

Does any of this apply to IRAs?

Nope. Inside a tax-deferred account, trading gains and losses are irrelevant.

What’s new?

Reporting by brokers. They are required to file cost statements to you and to the IRS.

Reporting of sales proceeds has been in effect for years. What’s new is that the 1099-B will report purchase prices.

The cost reporting mandate covers stocks you bought after Jan. 1, 2011, mutual funds bought after Jan. 1, 2012 and bonds you buy after Jan. 1, 2013.

This is to make it easier for you to do your taxes?

No. It’s to make it easier for the IRS to collect taxes.

How much more?

The official estimate is that government will haul in an extra $6.7 billion in capital gain taxes over a ten-year period, says Stevie D. Conlon, an accountant-lawyer with Wolters Kluwer Financial Services. Evidently a fair number of investors were fudging their costs.

What about securities bought earlier than those start dates?

Your broker probably has data going back a decade or so, and you can use those numbers to fill in the gains and losses on your Schedule D. But the older data is not reported to the feds.

The fact that a cost is not recorded by the broker or not sent to the IRS doesn’t relieve you of the obligation to report it correctly. If you get audited, you have to be able justify your number.

Says Conlon: “I’ve heard anecdotes from other practitioners that if you can’t prove your basis, in some cases the IRS will argue you have a zero basis and tax you on the entire [proceeds].”