How to Report a 1099 for a Stock Sale

When you sell stock or other securities, the transaction is a taxable event that must be reported to the Internal Revenue Service (IRS). Your brokerage firm will send you Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, which details your sales for the year. This document is provided to both you and the IRS. It provides the necessary figures to calculate your capital gains or losses.

Understanding Your Form 1099-B

Your broker sends Form 1099-B to summarize your stock sale activities. Box 1d, “Proceeds,” represents the total cash you received from a sale, after commissions are subtracted. This amount is compared against the “Cost Basis” in Box 1e, which is the original price you paid for the stock, including any commissions. The difference between these two numbers determines your gain or loss.

The form includes acquisition and sale dates in Box 1b and Box 1c. These dates determine the holding period, categorized in Box 2 as either short-term (held for one year or less) or long-term (held for more than one year). Long-term capital gains are taxed at lower rates than short-term gains, which are taxed at your ordinary income tax rate.

A checkbox, often in Box 5, indicates whether the securities are “covered” or “noncovered.” For covered securities, which include stocks purchased after 2010, the broker is required to report the cost basis to the IRS. For noncovered securities, the broker may not have the basis information, placing the responsibility on you to determine and report it.

Box 1g shows any “Wash Sale Loss Disallowed.” A wash sale occurs if you sell a security at a loss and buy a substantially identical one within 30 days before or after the sale. The IRS wash sale rule prevents you from claiming that loss for tax purposes. This disallowed loss is added to the cost basis of the replacement shares.

Correcting Cost Basis Information

The cost basis your broker reports on Form 1099-B might be incorrect or missing, particularly for noncovered securities. Since brokers were not always required to track this information, shares purchased many years ago or transferred between firms may have an incomplete basis history. You are responsible for finding the correct cost basis.

To find the correct basis, review your own records. Look for the original trade confirmation statement from when you first purchased the shares, as this document shows the purchase price and any commissions paid. If you cannot find the original confirmation, go through your old brokerage account statements for the period you acquired the stock.

Your cost basis may also need adjustments due to corporate actions. For example, a stock split increases the number of shares you own but lowers the cost basis per share. Reinvested dividends also increase your basis, as you are using the dividend payment to purchase more shares, and those dividends were already taxed. Mergers and acquisitions can also create complex basis adjustments.

Reporting Stock Sales on Your Tax Return

You must report the transactions on your tax return using IRS Form 8949, Sales and Other Dispositions of Capital Assets. This form is used to list the details of each stock sale, reconciling the amounts with what your broker reported to the IRS.

You will transfer the information from your 1099-B, such as the description, dates, proceeds, and cost basis, onto Form 8949. The form is divided into parts for short-term and long-term transactions. Within each part, there are checkboxes to indicate the type of reporting, such as checking Box A if the 1099-B is correct and shows the basis was reported to the IRS.

If your 1099-B shows an incorrect basis, you will use a different box, such as Box B for short-term or Box E for long-term transactions where the basis was not reported to the IRS. On Form 8949, you will enter the incorrect basis from the 1099-B, an adjustment code, and the correction amount in the appropriate columns. This process allows the IRS to see the discrepancy.

After completing Form 8949, the totals are carried over to Schedule D, Capital Gains and Losses. Schedule D summarizes your gains and losses from Form 8949 to calculate your net capital gain or loss for the year. This final figure is then transferred to your Form 1040, where it impacts your total taxable income.