How to Understand Your Tradestation 1099 Tax Statement

Tax season can be stressful, especially when handling investment accounts. If you use TradeStation, your 1099 tax statement summarizes taxable income and transactions. Understanding this document ensures accurate tax reporting and helps prevent IRS issues.

Consolidated 1099 Format

TradeStation issues a Consolidated 1099 tax statement, combining multiple forms into a single document. This simplifies reporting by including all taxable events in one place. The key components are Form 1099-B, Form 1099-DIV, and Form 1099-INT.

Form 1099-B reports proceeds from the sale of securities like stocks and options. It details cost basis, acquisition and sale dates, and whether a transaction is short-term or long-term for capital gains tax purposes. Brokers report cost basis for covered securities, but investors should verify this information, as errors can affect tax liability.

Form 1099-DIV details investment distributions, including ordinary and qualified dividends, which are taxed differently. It also reports capital gain distributions from mutual funds or ETFs. Foreign tax paid may qualify for a foreign tax credit, and non-dividend distributions impact cost basis calculations.

Form 1099-INT covers interest income from cash balances, bonds, and other accounts. If interest exceeds $10, it must be reported to the IRS. Tax-exempt municipal bond interest is disclosed separately, as it may be exempt from federal taxes but taxable at the state level.

Income Breakdown on the Statements

TradeStation’s 1099 categorizes different types of investment income, each with distinct tax implications. Understanding how dividends, capital gains, and interest income are reported ensures accurate filing and prevents misreporting.

Dividends

Dividends are company payments to shareholders, classified as ordinary or qualified. Ordinary dividends are taxed as regular income at rates from 10% to 37% in 2024. Qualified dividends receive lower rates of 0%, 15%, or 20%, depending on taxable income.

To qualify for the lower rate, investors must meet the IRS holding period requirement—generally holding the stock for more than 60 days during the 121-day period surrounding the ex-dividend date. The 1099-DIV also reports non-dividend distributions, which are not immediately taxable but reduce cost basis, potentially increasing capital gains when sold. Foreign taxes withheld on international stock dividends may qualify for a foreign tax credit.

Capital Gains

Capital gains occur when selling an asset for more than its purchase price. The 1099-B reports these transactions, distinguishing between short-term and long-term gains. Short-term gains, from assets held for one year or less, are taxed as ordinary income. Long-term gains, from assets held for more than a year, are taxed at 0%, 15%, or 20%, depending on taxable income.

The statement includes acquisition date, sale date, proceeds, and cost basis. If cost basis is missing or incorrect, investors must determine the correct amount using their records. Capital losses can offset gains, reducing taxable income. If total losses exceed gains, up to $3,000 ($1,500 for married individuals filing separately) can be deducted against ordinary income, with any remaining losses carried forward.

Interest Income

Interest income, reported on the 1099-INT, includes earnings from cash balances, bonds, and other accounts. Unlike dividends, interest is always taxed as ordinary income. If total interest income exceeds $1,500, the IRS requires filing Schedule B.

Certain types of interest receive special tax treatment. Municipal bond interest is generally exempt from federal taxes but may be subject to state or local taxation. Treasury bond interest is taxable at the federal level but exempt from state and local taxes. Accrued interest paid when purchasing a bond between interest payments can be deducted from taxable interest income. If backup withholding was applied, this appears on the 1099-INT and can be claimed as a credit when filing taxes.

Wash Sale Adjustments

The IRS wash sale rule prevents investors from claiming a tax deduction for a loss on a security if they repurchase the same or a substantially identical security within 30 days before or after the sale. Instead of deducting the loss, the disallowed amount is added to the cost basis of the newly acquired security, deferring the tax benefit.

TradeStation’s 1099-B identifies wash sales and adjusts cost basis accordingly. These adjustments complicate tax reporting, especially for active traders frequently buying and selling the same securities. The wash sale rule applies across all brokerage accounts, so investors trading the same stock in multiple accounts—including IRAs—must track transactions carefully. If a wash sale occurs in a tax-advantaged account like an IRA, the disallowed loss is permanently forfeited.

Short sellers are also subject to wash sale rules, which can be problematic when covering short positions and reestablishing them shortly afterward. Wash sales can occur with options and other derivatives if deemed substantially identical to the underlying security. Since brokers only track wash sales within the same account, investors must manually adjust for transactions across multiple accounts to comply with IRS regulations.

Corrections and Updates

TradeStation may issue a corrected 1099 if errors are discovered after the initial statement is sent. Corrections can result from updated reporting by issuers of stocks, bonds, or mutual funds, adjustments to cost basis, or reclassification of income types. If a corrected form is received after filing, an amended tax return may be necessary. The IRS allows taxpayers to file Form 1040-X to make changes, but this can delay refunds or trigger IRS scrutiny.

One common reason for corrections is income reclassification, particularly when dividends are later categorized as return of capital or capital gain distributions. This affects taxable income and cost basis tracking. Errors in reported proceeds or missing adjustments for corporate actions, such as stock splits or mergers, may also require updates. Investors should compare corrected 1099s with their records to determine if amendments are needed.

Important Filing Notes

Accurately reporting information from your TradeStation 1099 helps avoid IRS penalties, audits, or unnecessary tax liabilities. While tax software can simplify the process, investors should review their statements to ensure figures align with personal records. Discrepancies, such as missing transactions or incorrect cost basis calculations, can lead to errors that may trigger IRS notices. Keeping detailed records of trades, dividend payments, and interest income throughout the year helps reconcile inconsistencies before filing.

Taxpayers should be aware of deadlines and reporting obligations. The IRS requires brokerage firms to issue 1099s by mid-February, but corrections can arrive later. If a corrected form arrives after filing, an amended return may be necessary. Investors with significant investment income may be subject to the Net Investment Income Tax (NIIT), which imposes a 3.8% surtax on investment earnings if modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Those who owe estimated taxes should ensure they have accounted for investment income to avoid underpayment penalties.