Every year, I get several 1099-B tax forms from companies I trade stocks with. Other forms 1099-INT, 1099-DIV, etc, are quite useful, and contain all the information needed to do your taxes. The 1099-B, though? I’ve never seen one that listed the cost basis of a stock, or when the stock was purchased. Instead, they report only the total gain from the sale, and when it was sold. But you need all of it, total gain, date sold, cost basis, and purchase date to fill out your data correctly. The companies have this information, and could easily include it to make our lives easier. My question is: why don’t they?
There’s at least one situation in which it would be very difficult for them to provide the kind of information you’re after. In fact, my broker doesn’t even report the gain. All they report is the fact that a sale took place, the date on which it took place, and the selling price.
Let’s say you bought 10 shares of XYZ Corp. stock every year for 10 years. Now, you start selling it, a few shares at a time. Let’s say you sell 10 shares. Which 10 shares did you sell? Were they the shares you bought in 1995, or the ones you bought in 1998, or the ones you bought last year? While it’s tempting to adopt a simple, first-in-first-out rule, you may have very good tax reasons for choosing to sell the 1998 shares first (maybe you bought them fairly high, so selling them produces only a small capital gain, or maybe you bought them low, and want to offset some capital losses you have).
Well damn, Early Out, that’s a fairly good explanation! Still, perhaps they could include the information when unambiguous.
The other reason they don’t report that information is that the form and the information to be reported is specified by the IRS. Individual brokerage firms can’t just design their own form and report whatever numbers they want.
My accountant told me that this year, due to this very issue, the IRS is now allowing you to report the average cost basis for sales. Is this true?
I also noticed the same issue with my 1099 lacking this information, then discovered that it was listed in my year-end account summary. Does your company provide you with something like this?
Two things:
First, it’s generally considered unwise to report any information to the IRS beyond that which they absolutely require. Whatever is on the 1099-B form is reported to the IRS. So, what you really would like would be for the brokerage firm to give you additional information on a separate form, for your own use. Some brokerage firms might do that.
Second, for purchases of stocks, the only time the information would be unambiguous would be when all of the stock owned at the time of the sale had been purchased at the same time. A brokerage may not want to worry about sending information only in these special cases, and simply not send it at all.
For some brokerage firms, it might be possible to notify them at the time of the stock sale which shares you were selling, and then they might provide the cost basis information with the tax information at the end of the year. But again, this would never come on the 1099-B; it would always come as a separate form that would not be sent to the IRS.
Ed
Average cost basis is allowed only for mutual fund sales, not stock sales. Unless things have changed.
That’s my understanding, as well, and a quick reading of this year’s instructions for Schedule D would appear to confirm it - it mentions using the average cost for sales of shares of only mutual funds.
It’s also worth noting that the important word there is “allowed.” When you sell mutual fund shares, you can either use the average cost as your basis, or you can identify specific shares by their purchase dates and prices to figure the capital gain. My brokerage reports the average cost to me, separate from what’s reported to the IRS, and I can choose to use it, or not.