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5 Tips When Using Form 1099-B for Stocks and Other Investments

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Have you received Form 1099-B from your brokerage regarding the sale of your stocks and other investments?

Brokerages and other financial institutions are required to send you Form 1099-B if you sold stocks or other investments in your account. They also must send copies of the forms to the IRS.

The IRS matches the information on the forms they receive from the brokerage to the amounts you report on your tax return. If any information is missing, you’ll receive a letter with a correction from the IRS.

Make sure your financial institutions can find you

You should receive year-end statements from each brokerage or other financial institution by the end of January, or a few days later if the mail is slow.

It’s up to you to make sure you have received all your statements. Most of us remember to update our address with creditors who send us bills every month, but it’s easy to have financial institutions lose track of our addresses when we move.

Another reason to make sure your bank or brokerage has your current address is that you don’t want your account to end up on the unclaimed list, potentially to be turned over to your state!

Form 1099-B – standard and in disguise; don’t get confused

Some companies use the IRS Form 1099-B.

However, they are allowed to use their own version of the form, which can look entirely different. Don’t be confused.

The numbers and box descriptions on the forms should be labeled to correspond to the entries you make in TaxAct, regardless of what the form looks like.

New Form 1099-B reporting rules

In the past, brokerages reported your sales proceeds to you and to the IRS.

However, you were responsible for keeping track of what you paid for stocks and mutual fund shares yourself.

For 2012, brokerages are required to report the cost or other basis of shares sold for “covered” securities – basically securities you bought after January 1, 2012.

This makes tax season easier, because you don’t have to dig through old statements to find your cost basis yourself.

The IRS likes the new reporting, of course, because they’re more confident that taxpayers are reporting the correct basis.

Even stockbrokers must enjoy getting fewer phone calls from customers and their accountants, frantically asking for the cost basis of shares at the last minute.

What about shares I bought before January 1, 2012?

You still have to find records for the purchase of investments before 2012, regardless of when you sell them.

If you sell a group of shares, some of which you purchased after January 1, 2012, your brokerage reports the covered and uncovered shares on different lines on Form 1099-B.

What if I don’t like the method my brokerage used to determine which shares I sold?

If you sell part of a group of shares; for example, if you sell half of 100 shares of a mutual fund that you bought at various times, you can have your brokerage use one of several methods to determine which shares you sold.

However, you must make these instructions in advance for covered securities. You cannot determine later when you do your tax return which shares you sold.

Ask your broker how to make a written election to change the method you want to use in the future.

Photo credit: Mike Czumak via photopin cc

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