Your Brokerage 1099

Form 1099-B – Proceeds from Broker and Barter Exchange

This form is used to report your total proceeds (gross sales amount) to the IRS for all sales made in the current tax year. The 1099-B must be issued by your broker no later than January 31 of the following tax year. However, in many cases brokers provide one or more corrected 1099's weeks or months later due to the complexity of getting this report right.

The form generally includes interest and dividends and may be issued as a single form or as part of a consolidated report of tax or financial information. Form 1099-B may also be used to report a change in control or a change in capital structure by a company whose stock is owned by the investor.

See: Sample IRS Form 1099-B

Notice: New cost-basis reporting requirements for 2011 will change the 1099-B

Beginning in 2011, brokers are required to track and report cost-basis for securities, including limited adjustment for wash sales. This additional information will be reported on your 1099-B beginning with the 2011 tax year. This third party information will be required by the IRS so that they can further enforce tax regulations. See our Tax Topic: New Cost Basis Reporting Legislation to learn how this all affects you.

1099-B's differ from one broker to the next

Some brokers report detailed transaction history, others simply provide a summary. Some brokers report option contract transactions, most do not. Therefore, accurate trade matching is impossible using the 1099 alone.

Box 2 – Aggregate proceeds from stocks, bonds, etc.

This box reports all proceeds from the sale of stocks, bonds, mutual funds, and sale transactions related to the exercise of stock options. The proceeds amount is net of commissions related to such transactions. This is the main box that the IRS looks at when comparing what is recorded on your schedule d.

Important - The box 2 amount must be less than or equal to the total of the short-term and long-term sales amounts reported on lines 2 and 10 of the IRS schedule D (Form 1040) Capital Gains and Losses. Reporting less sales on lines 3 and 10 of schedule d than what is reported in box 2 of your 1099 is a red flag to the IRS and may prompt an audit.

But more is required on schedule d than simply reporting the box 2 proceeds amount. Each and every sale made in the current tax year and it's corresponding cost basis must also be reported, and a gain or loss calculated. Since the original cost basis information may not be reported on your 1099-B, this requires some extra work.

1099-B reported gains and losses

For those brokers who do report purchases and/or gain and loss information on their 1099, it is important to note that the profit/loss data is usually not accurate due to missing purchases from previous tax years, or incorrect cost basis (see Brokerage provided P&L statements). Taxpayers therefore need to be cautious about using this profit/loss information verbatim. Since this part of the form is only sent to the taxpayer and not to the the IRS, there is no need to try to match this to what you actually report on your schedule d.

In light of the above, taxpayers cannot rely on their 1099-B as the exclusive source for properly reporting their capital gains and losses on schedule-d!

A more accurate method of calculating your gains and losses from trading is to gather your trade history records from your online brokerage, and not to rely on the potentially incorrect data recorded on your 1099-B. You can use the 1099-B box 2 amount to reconcile your trade history which will alert you to any discrepancies.

Please believe us when we tell you that many 1099's are not accurate. We have seen 1099's that are missing sales or have reported sales that did not exist. We have even seen those that simply add up the sales listed incorrectly. In the end, the burden of proof is on the taxpayer and not your brokerage.

TradeLog allows for a complete and accurate accounting of all your trades made during the current tax year, unlike your broker provided 1099-B.

Next, learn about broker trade history reporting.