Contributed by: MatthewD, FreeTaxUSA Agent, Tax Pro
With the introduction of online brokerage accounts and apps for smart phones, more people are investing in the stock market on their own.
The statement you get from your brokerage company will likely be a composite or consolidated statement and will have several 1099 forms listed, each reporting different types of income. Look for this mailing from your brokerage around the end of January. If it doesn’t arrive, you may have signed up for paperless statements, and you’ll need to download the form from your online brokerage account. If you forget to enter your consolidated statement, this could mean incorrectly reporting your income. You may end up with penalties and interest and the need to file an amendment.
The challenge for many people is understanding what and where to enter information from the brokerage statement. Let’s start by briefly discussing what 1099 forms may show up on a consolidated statement. These may include one or more of the following:
- 1099-B: Proceeds from Broker and Barter Exchange Transactions
- 1099-INT: Interest Income
- 1099-DIV: Dividends and Distributions
- 1099-OID: Original Issue Discounts and Adjustments
- 1099-MISC: Miscellaneous Information
- Section 1256 Contracts 1099-B
A brokerage statement will include details of stock and mutual fund sales, summaries, and other related information.
Sample Broker Statement
Let’s first look at a composite brokerage statement and its sections. Then we’ll focus on the 1099-B: Proceeds from Broker and Barter Exchange Transactions.
Above is a sample of the first page of a common brokerage statement. This statement includes the following:
- 1099-DIV: Dividends and Distributions
- 1099-MISC: Miscellaneous Information
- Section 1256 Contracts
- 1099-B
- Summary of the 1099-B’s
If you have a consolidated statement showing a 1099-DIV amount like the above, this must be entered as part of your tax return as dividend income. If your summary of the 1099-B has amounts, then you had some stock or mutual fund sales. Keep in mind you may have had a year when you only bought a stock or mutual fund and didn’t sell any. In that case, the 1099-B will be blank. However, you may still have a 1099-DIV or 1099-INT with income. When you enter your stock sales, you want to continue turning the pages of your statement to the 1099-B section with all the details and box numbers. That will come after the first page of the consolidated statement.
You may potentially have several sections with multiple pages. The sections will be named based on how the stocks are reported on Form 8949. For example:
- Short-term transactions for which basis is reported to the IRS
- Short-term transactions for which basis is not reported to the IRS
- Long-term transactions for which basis is reported to the IRS
- Long-term transactions for which basis is not reported to the IRS
What are Covered and Noncovered tax lots?
When the basis is reported to the IRS, these are referred to as “Covered” tax lots. When the basis isn't reported to the IRS, these are referred to as “Noncovered” tax lots. Look for these headings, identify each section, and find the "TOTALS" lines. Each page will have a Totals line, but you want the "TOTALS" (in all-caps) line for the section of specific “Transactions”. Note that in the description the heading will explain which Form 8949 box to check. For example:
- Report on Form 8949 with box A checked is for Short-term transactions for which basis is reported to the IRS.
- Report on Form 8949 with box E checked is for Long-term transactions for which basis isn't reported to the IRS.
The snapshot below is an example of the heading you’re looking for on each section of the 1099-B. It shows Short-Term covered tax lots where the basis is reported to the IRS.
To enter your stock sales, either one at a time or as a summary, find the ‘TOTALS” line for that section. Here is a simple example:
Note there are no boxes, but the columns are named with the corresponding “box” number. Boxes are as follows.
- 1a – Description of property/CUSIP/Symbol
- 1b – Date Acquired
- 1c – Date Sold or Disposed
- 1d – Proceeds
- 1e – Cost or Other Basis
- 1f – Accrued Market Discount
- 1g – Wash Sale Loss Disallowed
- 12 – Report on Form 8949 with box (x) checked
There may be other box numbers not listed here, such as box 4, Federal Tax Withheld.
Entering a summary statement of stock sales
Let’s review how to enter this sample summary into FreeTaxUSA.
Step 1: Select Investments and Savings from the Income menu.
Step 2: Select “Add an Investment”.
Step 3: Select “Stock Sales (1099-B) and press Save and Continue.
Step 4: Select who owns the account (if filing married) and press Save and Continue. Then select either “One at a time” or “Summary”. We’ll look at both ways in this article.
Entering stocks “One at a time”
Let’s look at the sale of Uber Tech Inc that has a Wash Sale Loss Disallowed in box 1g.
Step 5: Enter the description (box 1a), the date acquired (box 1b), date disposed (1c), sales proceeds (box 1d), cost or other basis (box 1e), select Yes for the basis being reported to the IRS, since these are covered lots. There is no FATCA filing requirement and no federal tax withheld or state tax. But we still need to address the Wash Sale Loss. Select Save and Continue to proceed.
Step 6: Continue to the “Wash Sale” page, answer “YES” and select Save and Continue. On the “Wash Sale Information” page answer Yes and enter the “Wash Sale Loss Amount” from box 1g (the column and row for the corresponding stock sale.)
Entering a summary with many transactions
Now let’s look at the steps of entering a summary statement with many stock sales. Keep in mind that if you have 10 or less stock sales, you may want to enter them one at a time. We’ll use a simple example of Long-Term Sales from Covered transactions.
Follow Steps 1-4 above, but select ‘Summary” when you’re asked to ‘Choose how to enter your sale(s)”
Step 5: Using the example of “Long-Term Transactions for covered tax lots”:
- Select the correct “Sales Selection” option for the checked box for the 8949. For our example it is “D – Long-term basis reported to IRS (covered)”.
- Enter the Sales Proceeds from the “TOTALS” row labeled 1d.
- Enter the Cost Basis from the “TOTALS” row labeled 1e.
- There is no FATCA filing requirement or federal or state taxes in our example, but there may be a filing requirement on your statement. This is very uncommon.
- Press Save and Continue.
Step 6: If you have adjustments, select yes, fill in the adjustments and press Save and Continue.
Step 7: Most long-term transactions don't have a wash sale. However, it is possible. Enter any Wash Sale Loss Amount.
Continue through your brokerage statement and make sure you enter each section. Refer to the 1099-B Summary on the first page, which will have each type of sale and the amounts.
Remember you may also have 1099-INT and 1099-DIV income to report, we’ll look at how to find and enter them along with additional forms in other articles.
