Understanding IRS Form 8949 Categories

Each part of IRS Form 8949 has three categories, A, B and C as indicated by the check box at the beginning of each form. This topic provides more details as to what is reported for each category.

  From 2011 IRS Form 8949:

Two factors determine which category a particular trade is reported under:

1. Is the security reported on a Form 1099-B received from your broker?
• If YES - then the trade is reported on either category A or category B, the second factor will determine which category.
• If NO - then the trade is reported on category C.
2. Is the security a 'covered' security, meaning that your broker is required to report cost basis information for the security? This should be indicated by box 6 on the 1099-B you receive.
• If YES - then the trade is reported on category A.
• If NO - then the trade is reported on category B.

What determines if a security is Covered?

The IRS has determined which securities are covered and non-covered. Basically, a covered security is one that the broker must report on the 1099-B and must report cost basis data for, by law. Non-covered securities may be reported on your 1099-B and may even have cost basis data reported, but they are still classified as non-covered because they are not required by the IRS. Below is a list of typical securities and whether they are covered or non-covered, this list is not exhaustive or definitive. Your broker is required to classify and report securities according to the law and they are accountable for their reporting.

Stocks - typically all stocks are reported by brokers on Form 1099-B

Stocks purchased prior to 2011 are NON-COVERED securities

Stocks purchased after 2010 are COVERED

Mutual Funds - typically mutual funds are reported by brokers on Form 1099-B

Mutual funds are NON-COVERED until 2012 tax year

DRPs - Dividend reinvestment plan stocks are typically reported by brokers on Form 1099-B

DRPs are NON-COVERED until 2012 tax year

ETFs/ETNs - ETFs and ETNs are typically reported by brokers on Form 1099-B

Interpretation varies on whether ETFs and ETNs are covered or non-covered. It appears that most brokers are handling ETFs as COVERED in 2011 if they are structured similarly to a stock. However some ETFs may be reported as non-covered. Also, some brokers have opted for all ETFs to be NON-COVERED until 2012 tax year.

Options - Option contracts are not typically reported by brokers on Form 1099-B

Option contracts are NON-COVERED until 2013 tax year

Futures - Regulated futures contracts are reported differently than most other securities on Form 1099-B and are typically not reported on Form 8949

Futures contracts are NON-COVERED securities

Single Stock Futures - Single stock futures (defined by the IRS as Securities Futures Contracts) are exempt from Form 1099-B reporting and thus are typically not reported by brokers on that form, however, they usually are reported on Form 8949

Single stock futures (Securities futures contracts) are NON-COVERED securities

For more information about 1099-B reporting requirements, see IRS instructions for 1099-B.

How does TradeLog handle Form 8949 categories?

TradeLog generates Form 8949 according to IRS rules. When you generate Form 8949 in TradeLog, the software will automatically categorize trades based on the IRS definitions and standard broker reporting. Why spend hours or even days trying to classify your trades by hand when you can use professional software designed for active traders and investors and trusted by leading trader tax experts? If you haven't yet purchased TradeLog, download our free trial today!

Next up, we'll discuss how trades are entered on Form 8949.