Do I Need to Send 1099-B to the IRS? Here’s What to Know
Understand how 1099-B reporting works, when to include it on your tax return, and the potential impact of missing this information with the IRS.
Tax season can be confusing, especially when dealing with a 1099-B, which reports proceeds from broker and barter exchange transactions. Many taxpayers wonder whether they need to send this form to the IRS or if their brokerage handles it for them.
Understanding how this information is reported and what you’re responsible for ensures compliance and helps avoid penalties.
How 1099-B Data Is Reported to the IRS
Brokerages and financial institutions submit Form 1099-B directly to the IRS, documenting sales of stocks, bonds, mutual funds, and other securities. This form includes details such as the date of sale, proceeds received, and cost basis when available. The IRS uses this data to verify that taxpayers correctly report capital gains and losses.
Each 1099-B is transmitted electronically through the IRS’s FIRE (Filing Information Returns Electronically) system or via paper filing if the institution qualifies for an exemption. Brokers typically submit this information by February 15, though extensions may apply.
For securities acquired after the Emergency Economic Stabilization Act of 2008, brokers must report the adjusted cost basis, which determines whether a sale results in a short-term or long-term gain. Short-term gains are taxed as ordinary income, while long-term gains are taxed at rates ranging from 0% to 20% in 2024, depending on taxable income.
Criteria for Including 1099-B on Your Return
Taxpayers must report 1099-B transactions on Schedule D (Capital Gains and Losses) and, in many cases, Form 8949 (Sales and Other Dispositions of Capital Assets). The level of detail depends on whether the broker provided cost basis information and whether any adjustments are needed.
If all transactions have reported cost basis and no adjustments are required, totals can be summarized directly on Schedule D without filing Form 8949. However, if any sales involve missing or incorrect cost basis, wash sales, or other adjustments, each transaction must be itemized on Form 8949 before transferring totals to Schedule D.
Taxpayers with multiple brokerage accounts must consolidate 1099-B data across all sources, as each broker only reports transactions executed within their platform. This is especially important for frequent traders, as high transaction volumes increase the likelihood of errors.
Potential Consequences for Missing 1099-B Information
Failing to report 1099-B transactions can lead to discrepancies between your tax return and IRS records. If the IRS detects unreported sales, it may issue a CP2000 notice, an automated underreporting alert, which recalculates your tax liability and typically includes additional tax owed, interest, and possible penalties. Significant discrepancies could trigger an audit.
Penalties depend on the amount of unpaid tax. If the understatement exceeds the greater of $5,000 or 10% of the correct tax liability, a 20% accuracy-related penalty may apply under Internal Revenue Code 6662. Interest accrues daily from the original tax filing deadline. In cases of willful neglect or fraud, civil fraud penalties of 75% of the underreported tax under Internal Revenue Code 6663 can be imposed, with potential criminal charges in extreme cases.
Beyond IRS penalties, omitting 1099-B data can have long-term financial consequences. If unreported gains are discovered in a future audit, the statute of limitations for assessment can extend beyond the standard three years. If more than 25% of income is omitted, the IRS has up to six years to reassess taxes. Additionally, unresolved tax discrepancies can impact creditworthiness, as unpaid tax debts may lead to federal tax liens, which can affect loan approvals and refinancing opportunities.