1099-B Instructions for Reporting on Your Tax Return

Receiving a Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” means you sold securities like stocks, bonds, or mutual funds during the tax year. Financial institutions issue this form to report the gross proceeds from these sales to both you and the IRS. The information on Form 1099-B is the basis for reporting your capital gains or losses on your tax return.

Understanding Your Form 1099-B

Box 1a, “Description of Property,” identifies what you sold, such as “100 shares of XYZ Corp.” This is paired with Box 1b, “Date Acquired,” and Box 1c, “Date Sold or Exchanged,” which determine your holding period.

The financial details of the sale are outlined in subsequent boxes. Box 1d, “Proceeds,” shows the total amount you received from the sale before any commissions or fees are subtracted. Box 1e, “Cost or Other Basis,” represents your original investment in the security, including the purchase price and any associated transaction costs.

Certain boxes on the form provide additional context that affects your tax calculation. Box 1g, “Wash Sale Loss Disallowed,” indicates if a portion of your loss cannot be claimed in the current year. This occurs if you sold a security at a loss and purchased a substantially identical one within 30 days before or after the sale. Box 2, “Transaction Type,” will have a checkbox indicating whether the gain or loss is short-term (for assets held one year or less) or long-term (for assets held more than one year).

Box 5 has a checkbox to indicate if the cost basis was reported to the IRS. If this box is checked, the security is considered “covered,” meaning the broker is required to report the basis to the IRS. If it is not checked, the security is “noncovered,” and you are solely responsible for determining and reporting the correct cost basis. This distinction often applies to securities purchased before 2011 and is a common reason you may need to adjust the figures on the form.

Addressing Cost Basis Issues

The cost basis in Box 1e on Form 1099-B may be incorrect or missing, particularly for noncovered securities. Inaccurate basis reporting can lead to overpaying taxes on your gains or miscalculating your deductible losses. You are responsible for ensuring the figure reported on your tax return is accurate.

Several common situations require you to determine or adjust your cost basis. For instance, stock acquired through an Employee Stock Purchase Plan (ESPP) often has a basis different from what is reported, as the reported figure may not account for the discount received at purchase, which is treated as ordinary income. Similarly, if you transferred securities from another broker, the original purchase data might have been lost, leaving the basis field on your 1099-B blank.

The rules for inherited and gifted securities also necessitate basis adjustments. For inherited securities, the recipient’s basis is “stepped-up” to the fair market value of the security on the date of the original owner’s death. For securities received as a gift, the recipient assumes the donor’s original cost basis and holding period.

To find the correct basis information, you may need to consult historical records. Old trade confirmations, monthly or annual account statements, and historical stock price data available online can help reconstruct the purchase history. Maintaining meticulous records of all security purchases is an effective way to ensure you have the necessary documentation to support your cost basis calculations.

Reporting Transactions on Your Tax Return

Sales transactions are reported on Form 8949, “Sales and Other Dispositions of Capital Assets.” This form details each individual stock sale and reconciles the amounts with what your broker reported to the IRS.

Form 8949 is divided into Part I for short-term transactions and Part II for long-term transactions. At the top of each part, you must check a box that corresponds to the type of transaction reported on your 1099-B. For example, you would use Box A for short-term transactions where the cost basis was reported to the IRS, or Box E for long-term transactions where the basis was not reported to the IRS.

For each sale, you will transfer the information from your 1099-B to the columns on Form 8949. This includes the description of the property, the acquisition and sale dates, the proceeds, and the cost basis. If you needed to adjust the basis reported by your broker, you report the broker’s figure in column (e) and enter the necessary correction in column (g), “Adjustment to Gain or Loss.” You must also enter a specific code in column (f) to explain the adjustment, such as code ‘B’ for an incorrect basis.

After listing all transactions on Form 8949, you transfer the subtotals to Schedule D, “Capital Gains and Losses.” Schedule D is used to calculate your net short-term and long-term capital gain or loss. This final figure is then carried over to your main Form 1040, where it impacts your overall tax calculation.