Important Tax and Regulatory Information
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Most traders assume that their brokerage B includes everything they need to file their taxes, but that is far from the truth. Traders and investors must generate a Schedule D Form based form 1099-b brokerage statement Publication requirements which differ greatly from the requirements brokers have to follow when creating a B, especially when it comes to Form 1099-b brokerage statement Sales.
In addition, the IRS expects traders to reconcile their Form with what is reported on their Bs form 1099-b brokerage statement make any necessary adjustments, which can be a monumental task without specialized software.
Our blog article entitled " B Reconciliation Woes " highlights even more problems with the s starting with tax year Please note what two of the leading trader tax professionals have to say about brokerage B reporting:. The IRS has always, and continues to, place the burden of accurate tax reporting ultimately upon the taxpayer, as is evident by the requirement for brokers to include a reminder to taxpayers that they are ultimately responsible for the accuracy of their tax returns Pub.
A separate Form B is provided by a brokerage or barter exchange to the IRS and to the taxpayer client. The actual IRS form B is a triplicate form containing about 30 different boxes for reporting and looks more like a W-2 provided by employers. However, most traders and investors do not receive their B in this format because it would entail a separate form for each transaction. Instead, the IRS allows brokers to report B details in a substitute statement.
In general, brokers report all proceeds for sales of stocks, bonds, and commodities. They also report the proceeds for regulated futures contracts, foreign currency contracts, and forward contracts on an aggregate basis. Brokers do not report sale proceeds for option trades in the tax year.
In the future, the IRS will require brokers to report some options transactions. Brokers are required to report cost basis for covered securities. Covered securities are determined based on 1 the type of instrument and 2 the date the security was acquired. In general, the following are covered securities:. There are exceptions that apply in certain circumstances. And there are also varying interpretations of IRS requirements by some brokers.
Active traders typically receive Form 1099-b brokerage statement substitute statements. The format and layout of substitute statements can vary greatly depending on the broker. Inthe IRS outlined some rules to make those statements more consistent and user-friendly.
Starting with the tax year, the B statement must segregate trades in up to five categories:. In each of the segregated sections, form 1099-b brokerage statement broker must total sales price and cost basis known for the trades in that section. Brokers may provide additional information in conjunction with the B substitute statements, some of which may not be reported to the IRS. Form 1099-b brokerage statement additional reporting may be helpful to active traders, but should not be confused form 1099-b brokerage statement the information actually reported to the IRS.
Ideally, taxpayers would be able to take broker-provided B reporting and use the information to create their Forms and Schedule D. In fact, this was the ideal of congress when they passed cost-basis reporting legislation.
Unfortunately, current B reporting and regulations are woefully inadequate. In fact, we have published a page special report entitled The B Problem. Our special form 1099-b brokerage statement explains why active traders cannot use the B to complete Form ; the primary reasons:. TradeLog software includes form 1099-b brokerage statement process for reconciling imported trade history with B gross proceeds.
Reconciling proceeds allows taxpayers to verify that their trade history is complete, resulting in accurate Form reporting.
Most active traders are able to verify and reconcile, at least in aggregate, the sale proceeds on the B. Reconciling cost basis reported on B with actual trade history can be impossible in many cases. As explained in our special report, The B Problemthe information reported on the B lacks the form 1099-b brokerage statement needed in order to form 1099-b brokerage statement line-by-line with trade history reports or monthly statements.
If a taxpayer cannot reconcile B cost basis with their actual trade history, then they cannot rely on that cost basis for generating accurate Form reports. For this reason, thousands of active traders, as well as form 1099-b brokerage statement trader tax CPAs, use the actual trade history to generate their tax reporting with TradeLog software. There are a few facts active traders should be aware of, and questions that result:.
Most popular tax software programs were designed for average Form 1099-b brokerage statement - not active traders. Active traders deal with some of the most complex IRS reporting requirements and therefore need to use software designed especially for them.
TradeLog is software designed specifically for producing accurate tax reporting for active traders. TradeLog utilizes proven methods to generate Form reports that reconcile with broker-provided B. Learn more about why active traders use TradeLog. For over 10 years TradeLog software has generated accurate trader tax reporting for Schedule D. TradeLog imports actual trade history from online brokers, then matches and adjusts trades according to IRS rules for capital gains and losses and wash sales - using the rules for taxpayers.
TradeLog includes a process for reconciling imported trade history with B gross proceeds in order to verify trade history and produce accurate Form reporting. This information is provided only as a general guide and is not to be taken as official IRS instructions. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation. Contents B Serious Problems: Why is Form B Inadequate?
Layout of B Additional Reporting. Please note what two of the leading trader form 1099-b brokerage statement professionals have to say about brokerage B reporting: Gaps in Cost Basis Reporting. TradeLog Software utilizes proven methods for generating accurate trader tax reporting.