How to Read a 1099-B and Understand Its Key Details

Tax season can be confusing, especially when dealing with investment-related forms like the 1099-B. This document reports sales of stocks, bonds, and other securities, which are used to calculate capital gains or losses on your tax return. Misunderstanding it can lead to errors, potentially resulting in incorrect tax payments or IRS scrutiny.

To avoid mistakes, it’s important to understand the information this form provides and how to use it correctly when filing taxes.

Layout and Key Boxes

The 1099-B contains multiple sections detailing securities transactions. While it may seem complex, breaking it down into key components makes it easier to understand. Important fields include proceeds from sales, federal tax withheld, and adjustments that affect how transactions are reported. Reviewing these sections carefully helps ensure accurate tax reporting and prevents discrepancies.

Proceeds

One of the most significant figures on the 1099-B is the total proceeds from securities sales, listed in Box 1d. This represents the gross sale price before deductions like fees or commissions. However, it does not include the original purchase cost, which is necessary for calculating gains or losses.

For example, if you sold shares for $5,000, that full amount appears in this section, regardless of whether you originally bought them for more or less. The IRS requires this information because selling securities can generate taxable income, and taxpayers must determine their profit or loss based on the purchase price.

Brokerages report proceeds accurately, but transaction fees may not always be reflected. Some brokers deduct these costs before reporting, while others do not. Taxpayers should verify their records to ensure correct reporting.

Federal Income Tax Withheld

Box 4 of the 1099-B shows any federal income tax withheld from transactions. This primarily applies to certain account types, such as those belonging to nonresident aliens or individuals who failed to provide a valid taxpayer identification number (TIN). The IRS requires backup withholding at a rate of 24% under Section 3406 of the Internal Revenue Code.

For instance, if backup withholding was applied to a $10,000 stock sale, the broker would withhold $2,400 and send it to the IRS. This amount can then be claimed as a credit when filing a tax return, reducing the total tax owed.

Most investors do not have tax withheld on transactions unless they meet specific criteria, but it is still important to check this section. If any withholding appears, it should match brokerage statements to ensure proper reconciliation.

Adjustments or Codes

Certain transactions require adjustments, indicated by codes in Box 1f and Box 1g. These codes help determine whether modifications are needed when calculating capital gains or losses.

A common adjustment is for wash sales, which occur when a security is sold at a loss and repurchased within 30 days before or after the sale. Under IRS rules, the loss is disallowed and must be added to the cost basis of the repurchased shares.

Other codes may indicate whether a sale involved collectibles, options, or market discount bonds, all of which have different tax treatments. For example, market discount bonds may require adjustments to how interest income is reported.

Taxpayers should review these adjustments carefully, as they can change the taxable amount. Ignoring these details could result in reporting errors, increasing the risk of an IRS audit or requiring an amended return.

Cost Basis Details

Cost basis represents the original value of an asset, adjusted for factors like stock splits, reinvested dividends, and corporate actions. The IRS uses this figure to calculate capital gains or losses, making it essential for accurate reporting.

Brokerages must report cost basis for covered securities—stocks purchased on or after January 1, 2011, and mutual funds or dividend reinvestment plans acquired after January 1, 2012. For non-covered securities, which include assets bought before these dates, investors are responsible for maintaining records. If cost basis is missing, the IRS may assume a basis of zero, leading to an inflated taxable gain.

Adjustments to cost basis can result from corporate actions like stock splits, mergers, or spin-offs. For example, in a 2-for-1 stock split, an investor who originally bought 100 shares at $50 each would now own 200 shares at $25 each. Failing to adjust for such changes could lead to incorrect reporting. Similarly, reinvested dividends increase cost basis over time, reducing taxable gains upon sale.

For inherited investments, cost basis is typically stepped up to the fair market value on the date of the original owner’s death. This can reduce tax liability, as appreciation before inheritance is not taxed. In contrast, gifted securities retain the original owner’s cost basis, meaning the recipient may owe taxes on a larger gain when selling.

Short-Term vs. Long-Term Transactions

The length of time an investment is held before being sold determines its tax treatment. Short-term transactions involve assets sold within one year of acquisition, while long-term transactions apply to holdings kept for more than a year.

Short-term capital gains are taxed as ordinary income, with rates ranging from 10% to 37% in 2024, depending on total taxable income. For example, an investor in the 32% bracket who sells a stock after holding it for 10 months will pay that same 32% rate on any profits.

Long-term capital gains are taxed at lower rates—0%, 15%, or 20%—depending on income. A single filer with taxable income below $47,025 in 2024 qualifies for the 0% rate, meaning they can sell long-term holdings without owing federal capital gains tax. Those earning between $47,025 and $518,900 fall into the 15% bracket, while income above this threshold is taxed at 20%. These lower rates encourage long-term investing.

Certain assets, such as collectibles and some real estate investments, have different tax treatments. Collectibles, including rare coins, art, and precious metals, are taxed at a maximum rate of 28% on long-term gains. Real estate has unique rules, particularly when depreciation is involved. If a rental property is sold at a gain, the portion of the profit attributed to prior depreciation deductions is taxed at a 25% recapture rate.

Reconciling Totals with Personal Records

Ensuring the accuracy of a 1099-B requires comparing brokerage-reported information with personal records. Discrepancies can arise due to corporate actions, incorrect reporting, or missing transactions, making it necessary to verify all details before filing a tax return.

One way to do this is by cross-referencing trade confirmations and monthly account statements, which provide a detailed view of each transaction. If an investor exercised stock options or participated in a tender offer, these transactions may not always be reflected correctly on the brokerage’s reported figures, requiring manual adjustments.

Errors can also stem from dividend reinvestment plans (DRIPs) or employee stock purchase plans (ESPPs), where shares are acquired over time. If cost basis tracking is inconsistent, reported gains may be overstated, leading to higher tax liabilities. Investors should review Form 8949, which is used to reconcile sales reported on the 1099-B with what is entered on Schedule D. If discrepancies exist, attaching an explanatory statement to a tax return can help clarify differences and reduce the likelihood of IRS inquiries.