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Understanding Your 1099

1099 tax forms and cost basis reporting

When it comes to reporting your trading activity to the IRS, brokerages are required to report your sales proceeds and some of your cost basis. The 2011 tax year was the first year for this requirement, so stocks that you purchased before 2011 aren't covered.

We'll only report cost basis to the IRS for transactions that are officially covered, but to help you out, we'll provide cost basis for your sell transactions on your 1099 tax form for each tax year. It's up to you to report this information to the IRS when you file your taxes. We strongly advise that you consult with a tax advisor to validate all cost basis information provided on your 1099-B.

What's reported to the IRS?

For covered securities, your proceeds and your cost basis will be reported, but your gain (or loss) will not. For uncovered securities, just your proceeds are reported. The Gain and Loss Tax Management Tool has detailed information about every security you've owned and is a great place to start.

Some key information on your 1099

The 1099 includes important information about your cost basis:

  1. The cost basis that was reported to the IRS and the cost basis that was not reported.
  2. Covered Securities (cost basis reported to IRS) - Both proceeds and cost basis will be reported to the IRS. Any stocks purchased after January 1, 2011, will be in this section, as well as mutual funds and ETFs purchased after January 1, 2012 and options purchased after January 1, 2014. These transactions are referred to as "Covered."
  3. Non-covered Securities (cost basis NOT reported to the IRS) - Proceeds will be reported to the IRS, but the cost basis information is provided just for you and will not be reported to the IRS. Transactions in this section are referred to as "Non-Covered."
  4. Wash Sale Loss Disallowed - We're required to report wash sales on your 1099 since they directly affect your cost basis.
  5. Tax Lots - If you sell a security, it may consist of one or many different purchases or "tax lots." Your 1099 will say "various" if you've acquired more than one tax lot. Use the Gain and Loss Tax Management tool to find detailed information about each lot.