How to Use the 1099-B Worksheet for Reporting Investment Transactions

Tax season can be complicated, especially when dealing with investment transactions. If you’ve sold stocks, bonds, or other securities, your brokerage will send you Form 1099-B detailing these trades. To report this information accurately on your tax return, the IRS provides a 1099-B worksheet to organize gains, losses, and cost basis details.

Using this worksheet correctly helps ensure accuracy in tax filings and prevents overpaying or underreporting taxable income. Proper completion also reduces the risk of IRS scrutiny.

Purpose of the Worksheet

The 1099-B worksheet helps taxpayers report investment sales correctly. Since brokerage firms report these transactions to both the IRS and the investor, discrepancies can trigger audits or correction notices. The worksheet ensures figures match brokerage records, reducing errors.

Investment sales often involve multiple purchases over time, dividend reinvestments, or corporate actions like stock splits, all of which affect cost basis. Tracking these details can be overwhelming, especially for frequent traders. The worksheet breaks down each sale to determine taxable amounts.

It also helps with wash sale adjustments. The IRS disallows losses if a substantially identical security is repurchased within 30 days before or after the sale. Brokerages may not track wash sales across multiple accounts, so taxpayers must manually adjust for compliance.

Types of Transactions on the Worksheet

Investment sales vary based on the type of security and how it was acquired. Stocks, bonds, mutual funds, ETFs, options, and cryptocurrency may appear on the worksheet, each with unique reporting requirements for cost basis and holding period classification.

Short-term and long-term holdings are separated since they are taxed differently. Assets held for one year or less are short-term, while those held longer are long-term. Short-term capital gains are taxed as ordinary income, ranging from 10% to 37% in 2024. Long-term gains are taxed at 0%, 15%, or 20%, with an additional 3.8% net investment income tax (NIIT) for high earners.

Some transactions require additional reporting. Inherited securities receive a stepped-up cost basis, adjusting their value to the fair market price at the original owner’s death, eliminating taxable gains from the deceased’s holding period. Gifted securities retain the donor’s original cost basis, which can lead to unexpected tax consequences if the asset has appreciated significantly.

Corporate actions such as mergers, spin-offs, and stock splits also impact cost basis. A merger may exchange shares for stock in a new company, requiring cost basis adjustments and potentially triggering taxable events. Spin-offs can lead to partial cost basis reallocations, where part of the original investment is assigned to a newly created entity.

Capital Gains and Losses

The difference between the selling price and purchase price determines whether a capital gain or loss has occurred. Gains increase taxable income, while losses can offset gains or reduce taxable income. The IRS allows capital losses to offset capital gains dollar-for-dollar, and if losses exceed gains, up to $3,000 ($1,500 for married individuals filing separately) can be deducted against ordinary income annually. Excess losses can be carried forward indefinitely.

Certain events, such as forced sales due to margin calls, can result in realized gains or losses even if the investor did not intend to sell. Securities from employee stock purchase plans (ESPPs) or non-qualified stock options (NQSOs) may have additional tax considerations. For example, the discount on ESPP shares is considered ordinary income and must be factored into total tax liability.

Tax planning strategies can help manage capital gains exposure. Tax-loss harvesting, where investors sell underperforming assets to offset gains, is useful in years with significant gains. Another strategy involves timing sales in lower-income years to benefit from reduced capital gains tax rates.

Cost Basis Reporting

Accurately determining cost basis is essential for calculating taxable gains or losses. The IRS allows several tracking methods, each affecting tax liability differently. The First-In, First-Out (FIFO) method assumes the oldest shares are sold first. While FIFO is the default for most brokerages, investors can elect specific identification (Spec ID), allowing them to choose which shares to sell, potentially minimizing gains. The average cost method, primarily used for mutual funds and certain ETFs, calculates an average per-share cost across all purchases, simplifying reporting but reducing tax planning flexibility.

Brokerages report cost basis for covered securities—stocks and ETFs acquired after January 1, 2011, and mutual funds acquired after January 1, 2012—directly to the IRS on Form 1099-B. For non-covered securities, such as stocks purchased before these dates or inherited assets, taxpayers must maintain accurate records. If cost basis is not tracked properly, the IRS may assume a basis of zero, leading to an overstatement of taxable gains. Investors should retain trade confirmations, brokerage statements, and purchase records to substantiate reported figures in case of audit.

Adjustments for Special Situations

Some investment transactions require modifications to cost basis or gain calculations to comply with IRS regulations. These adjustments can arise from corporate actions, tax-exempt securities, or specific holding periods.

Wash sales are a common adjustment. If a security is sold at a loss and a substantially identical security is repurchased within 30 days before or after the sale, the IRS disallows the loss. Instead, the disallowed loss is added to the cost basis of the repurchased security, deferring the tax benefit until the new shares are sold. Brokerages typically track wash sales within a single account, but if trades occur across multiple accounts—including retirement accounts like IRAs—the taxpayer must make the necessary adjustments.

Return of capital distributions also require adjustments. Some investments, such as real estate investment trusts (REITs) and master limited partnerships (MLPs), distribute payments classified as a return of capital rather than dividends. These distributions reduce the investment’s cost basis, increasing the taxable gain when the asset is sold. If the cost basis reaches zero, further distributions are taxed as capital gains in the year received.

Filing the Worksheet with Tax Documents

Once all investment transactions are categorized, cost basis is verified, and necessary adjustments are made, the final step is incorporating the worksheet into the tax return. Capital gains and losses are reported on Schedule D and, in most cases, Form 8949. The 1099-B worksheet serves as a reference to ensure figures align with brokerage records.

Form 8949 details each transaction, including acquisition date, sale date, proceeds, cost basis, and any necessary adjustments. Transactions are separated into short-term and long-term categories, and codes indicate whether cost basis was reported to the IRS by the brokerage. Adjustments, such as wash sale disallowances or return of capital reductions, must be reflected in the corresponding column. Once all transactions are listed, the totals from Form 8949 are transferred to Schedule D, which calculates the final capital gain or loss to be reported on Form 1040.