1099 Tax Software Blog

Here’s a quiz.

What form is was updated a couple of years ago to include more information, is issued millions of times each year, revised almost as many millions of times each year and seldom appears in its designed format?

If you answered form 1099-B, you win the prize.

The largest number of forms 1099-B issued go to stock and bond investors from their investment houses. However, practically no investment house reports the proceeds from the sale of stocks and bonds on the actual form 1099-B. Instead, the companies that handle these transactions use a larger format brokerage statement to lay out their information. This makes sense when you realize that most investors have more than one stock holding. An investor whose portfolio buys and sells dozens, or even hundreds, of transactions each year needs a more efficient way to distribute this information.

Brokerages also use form 1099-B, generally in the form of a brokerage statement, to report sales of futures contracts, commodities, foreign currency contracts, and options.

The tax laws changed a few years ago, requiring the brokerage companies to include the basis of stocks and bonds sold on their 1099-B, something they should have been doing from the start.  New software was developed (Congress gave the companies two years to phase it in) and all requirements have now been met.

Unfortunately, what has been happening since the new rules came into effect is that the initial statement is released by the deadline of February 15th (Congress graciously gave the brokers two additional weeks each year to get the information out) and corrected statements – sometimes more than one – keep coming well into March. So, taxpayers who file their returns any time before the end of March have run the risk of having to file amended returns when “revised” 1099Bs unexpectedly appear in late March.

Other types of investments might well appear on form 1099-B, including sales of gold and silver, classic comic books, classic cars, collectible stamps, investment art, historical documents and so forth.  Because these are generally single item sales, they fit nicely on the 1099-B.

Barter transactions are also likely to be reported on the form. Barter transactions are not as rare as people think. There are even organizations that people can join to offer their services to others in exchange for something they need.

The IRS makes a distinction between the dentist who casually exchanges dental services with the plumber who fixes his pipes, and two individuals working through an established barter exchange program. The casual exchange between the plumber and the dentist does not require a 1099-B. Instead, the value of the exchanges should be reported on a 1099-misc and both parties should enter that information on schedule C, form 1040, subtracting any expenses involved. Registered exchangers who received benefits from an organized exchange should receive a 1099-B. Their information will also be entered on schedule C, form 1040.

Form 1099-B is an information return that the Internal Revenue Service requires to be filed for the gross proceeds of the sales of option shares in non-retirement accounts minus or including a contingent deferred sales charge (CDSC) and redemption fees.  Most commonly, mutual fund withdrawals and stock sales are reported with Form 1099-B.  However, several other stock related transactions should be reported on Form 1099-B.  Form 1099-B is not used however to report capital gains or losses.  The 1099-B information return is used to complete Schedule D on Form 1040 which requires the reporting of option shares.

Generally an employee’s broker will complete the 1099-B after the sale of option shares and send it to the payment recipient.  The broker may choose to report the transaction amount including transaction fees or excluding transaction fees.  If the broker chooses to report the proceeds including transaction costs, the person receiving the 1099-B form should add the fees to their cost basis on their Schedule D.

IRS Form 1099-B consists of 3-pages with 2 forms per page.  Copy A is a red-ink form that the broker can paper file with the IRS.  Do not download Copy A from the Interal Revenue Service website and print and submit.  Even if your printer can print in a red-colored ink, it’s not the same ink that the IRS uses to create Copy A.  The official printed version of the IRS form is scannable, but the online vrsion of it, printed from a website, is not. A penalty may be imposed for filing forms that can’t be scanned. Copy B can be printed on plain paper with black ink and is sent to the recipient.  Copy C is retained by the broker.

For brokers, each recipient of option shares must receive a 1099-B.  The form must be sent by the broker to the payment recipient by January 31 of the year after the calendar year in which the transactions being reported occurred.

Form 1099-B must be paper filed to the IRS by the end of February along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns.  If you file electronically, you have until the end of March.  You can go online and file for an extension taking the due date to the end of April if you need more time.

If the recipient of the proceeds is a nonresident alien, you may have to withhold federal income tax.