An article in last week’s Investopedia.com explained some of the broad differences in brokerage houses. One aspect many investors and traders give no thought to when choosing a broker is the necessary tax reporting. The 2011 tax year revealed disturbing problems as some brokers simply could not provide accurate 1099-B reports for many clients! Read: 1099-B Reporting Problems.
Even if an accurate 1099-B is provided, it may not include all adjustments and wash sales since brokers have different reporting requirements. Read: Brokerage Tax Reporting. That is why IRS rules for traders and investors state that they need to keep their own records for reporting gains and losses and wash sales. Software like TradeLog enables traders to import trade history from many online brokers for accurate tax reporting. Actual trade history can be used for matching trades and calculating taxable gains and losses with wash sale adjustments based on IRS rules.
Next time you are considering a new broker for your trading and investing, give some thought to tax reporting and make sure you have the tools needed to make tax time easier!
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.