Every February, traders receive Form 1099-B from their brokerages reporting the year's trading activity. Understanding this form is essential for accurate tax filing. This guide explains what the 1099-B contains, how to interpret it, and what to do if the information is incorrect.
Disclaimer
This is general information, not tax advice. Consult a qualified tax professional for your specific situation.
What Is Form 1099-B?
Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) is an IRS tax form that brokers use to report your sales of securities. Your broker sends this form to both you and the IRS, so the IRS knows your reported transactions.
The form reports:
- Description of property sold (stock, options, etc.)
- Date acquired and date sold
- Proceeds from the sale
- Cost basis (for covered securities)
- Gain or loss
- Whether the gain/loss is short-term or long-term
- Wash sale adjustments (when applicable)
When You Will Receive Your 1099-B
Brokers must provide 1099-B forms by mid-February. However, many brokers issue corrected forms later if errors are found. Key dates:
- Mid-February: Initial 1099-B issued
- February-March: Corrected forms may be issued
- Tax filing deadline: Use the most recent version
Key insight: Wait until at least mid-March before filing your taxes if possible. Brokers frequently issue corrected 1099-B forms, and filing with incorrect information can trigger IRS notices.
Understanding the 1099-B Sections
Box 1a: Description of Property
Shows what was sold: stock shares, option contracts, ETF shares, etc. May include CUSIP numbers or abbreviated descriptions.
Box 1b: Date Acquired
The date you originally purchased the security. Shows "Various" if multiple lots were sold. May be blank for non-covered securities.
Box 1c: Date Sold
The date you sold or disposed of the security.
Box 1d: Proceeds
The gross amount you received from the sale. This is before subtracting commissions or fees.
Box 1e: Cost or Other Basis
Your cost basis in the security. For covered securities, the broker must report this. For non-covered securities, this box may be blank.
Box 1f: Accrued Market Discount
Applies mainly to bonds purchased at a discount. Not relevant for most stock and options traders.
Box 1g: Wash Sale Loss Disallowed
Shows the amount of loss disallowed due to wash sales. This amount is added back to your cost basis.
Box 2: Type of Gain or Loss
Indicates short-term or long-term:
- Short-term: Held one year or less
- Long-term: Held more than one year
Covered vs. Non-Covered Securities
The distinction between covered and non-covered securities affects what your broker reports:
Covered Securities
Securities acquired after specific dates where brokers must track and report cost basis:
- Stocks acquired after January 1, 2011
- Mutual funds and ETFs acquired after January 1, 2012
- Options and bonds acquired after January 1, 2014
For covered securities, the broker reports cost basis to both you and the IRS.
Non-Covered Securities
Securities acquired before these dates. The broker may report cost basis to you but is not required to report it to the IRS. You must track and report your own cost basis.
Key insight: For non-covered securities, the IRS only knows your proceeds, not your cost basis. You must report the correct basis on Form 8949, even if it differs from what your broker shows.
Reporting Categories on Form 8949
Your 1099-B transactions are reported on Form 8949, which feeds into Schedule D. Transactions are categorized based on reporting status:
Category A (Box A)
Short-term transactions with cost basis reported to IRS. These come from covered securities held one year or less.
Category B (Box B)
Short-term transactions where cost basis was NOT reported to IRS. You must provide the cost basis.
Category C (Box C)
Short-term transactions not reported on any 1099-B.
Category D (Box D)
Long-term transactions with cost basis reported to IRS. Covered securities held more than one year.
Category E (Box E)
Long-term transactions where cost basis was NOT reported to IRS.
Category F (Box F)
Long-term transactions not reported on any 1099-B.
Common 1099-B Issues and Errors
Incorrect Cost Basis
Brokers make mistakes. Common causes:
- Transferred shares with incorrect basis
- Corporate actions not properly adjusted
- Wash sale adjustments miscalculated
- Gift or inheritance basis not updated
Missing Transactions
Some transactions may not appear:
- Options expiring worthless (sometimes not reported)
- Transfers between accounts
- Very small transactions
Wash Sale Discrepancies
Brokers only track wash sales within their own accounts. If you have multiple brokers or IRAs, wash sales across accounts will not be reflected on your 1099-B.
Cross-Account Wash Sales
You are responsible for tracking wash sales across all your accounts, including IRAs at different brokers. Your 1099-B will not show these, but you must still report them correctly.
What to Do If Your 1099-B Is Wrong
Minor Errors
For small discrepancies, you can report the correct information on Form 8949 with adjustment codes. Common codes:
- Code B: Basis reported to IRS is incorrect
- Code W: Wash sale adjustment
- Code O: Other adjustments
Major Errors
For significant errors, contact your broker to request a corrected 1099-B. If they refuse, you can still file with the correct information, but keep documentation supporting your figures.
Transferred Securities
When you transfer securities between brokers, the receiving broker may not have accurate cost basis information. You should:
- Provide cost basis information to the new broker
- Keep records of your original purchases
- Verify the new broker recorded the basis correctly
Track Your Own Cost Basis
Pro Trader Dashboard maintains accurate cost basis records for all your trades, so you always have the correct information for tax reporting.
Options on Form 1099-B
Options have special reporting considerations:
Options You Bought and Sold
Reported like stocks with proceeds and cost basis. The gain or loss is the difference.
Options You Wrote (Sold to Open)
The premium received appears as proceeds. If the option expires worthless, your basis is zero.
Options Exercised or Assigned
May not generate a 1099-B entry. Instead, the option premium affects the cost basis of the underlying stock.
Options Expiring Worthless
Sometimes reported, sometimes not. If you bought an option that expired worthless, it is a capital loss equal to the premium paid.
Cryptocurrency on 1099-B
Beginning in recent years, some crypto exchanges issue 1099-B for crypto transactions. However, reporting is still inconsistent across the industry. Keep your own detailed records of all crypto trades.
Consolidated 1099 Forms
Most brokers issue a consolidated statement that includes:
- 1099-B: Sales transactions
- 1099-DIV: Dividends received
- 1099-INT: Interest income
- 1099-MISC: Other income
Review all sections, as each affects different parts of your tax return.
Summary
Your 1099-B is a critical tax document that forms the basis for reporting your trading activity to the IRS. Key points to remember: verify all cost basis information, especially for transferred securities; track wash sales across all accounts since your broker only reports within their accounts; understand the difference between covered and non-covered securities; wait for corrected forms before filing; and keep your own records to verify broker reporting.
By understanding your 1099-B and maintaining accurate records, you can ensure your tax reporting is correct and minimize the risk of IRS notices or audits.
Learn more: capital gains tax guide and understanding wash sales.