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EDUCATION
CENTER
Cost-Basis Reporting, Form 8949 & 1099-B
The Basics on Cost-Basis Reporting Problems and Solutions. Click
here to start.
More In-Depth Content:
- Blog articles: GreenTraderTax
blog (see below), Forbes
and Benzinga.
We've written many cutting-edge blogs on the cost-basis reporting crisis.
There is plenty to read here and it's important. It's the same body
of content on each of these blogs. This is where we broke this story.
- Mar
04 13 - Caution, downloading securities Form 1099-Bs into TurboTax
often leads to incorrect tax filings
- Nov
20 12 - Cost-Basis Reporting Problems and Solutions
- Aug
29 12 - An update note to tax preparers and traders about incorrect
1099-Bs and 2011 tax filings
- Aug
17 12 - Tax Return Footnote: 2011 Form 8949 and Cost-Basis Reporting
Rules
- Aug
16 12 - Why do forex forward dealers issue 1099s, yet retail
spot forex brokers do not?
- Jul
11 12 - Cost-Basis Reporting Update: How To File Form 8949 With
1099-B Differences
- Jun
28 12 - Form 8949: What To Do About Tax Problems For Reporting
Securities Trades
- Mar
28 12 - See smoking guns on botched 1099-Bs from securities
brokers
- Mar
26 12 - Petition: Securities Traders Need Tax Relief on IRS
Cost-Basis Reporting Rules
- Mar
20 12 - Brokers are only reporting potential wash sales,
not final wash sales
- Mar
20 12 - IRS, why force taxpayers to reconcile securities-broker
1099-Bs to tax returns, when your rules are apples vs. oranges?
- Mar
15 12 - Please IRS, don’t match tax returns with new cost-basis
1099-Bs
- Mar
10 12 - Big Concerns with Botched 1099-Bs and Discrepancies
on Form 8949
- Feb
02 12 - Cost-Basis Reporting on IRS Form 8949 Is a Nightmare
- Webinars:
Our Webinars on cost-basis reporting, Form 8949, error-prone 1099-Bs
and unreconcilable differences are all must viewing for securities traders,
brokers, tax preparers, the media and IRS. Click
here to watch them.
- Video: Watch a MoneyShow video interview with Robert
A. Green, CPA on this subject from the June 2012 Traders Expo Dallas:
Tax
Flubs That Can Cost You Thousands - Released: 6/12/2012.
Trader Tax Changes New for 2012 — cost-basis reporting, Form
8949, and 1099-B problems recorded by MoneyShow.com at the Traders Expo
NYC on Feb. 20, 2012. New video links are coming soon recorded at the
Traders Expo NYC on Feb. 19, 2013.
- Media Coverage featuring GreenTraderTax on cost-basis reporting:
(in order of most current)
- Wall Street Journal (3/1/13) "When
Your Broker 'Outs' You" (Tax Report), By Laura Saunders.
Robert Green & Darren Neuschwander are quoted in the article.
Excerpt: Check 1099-Bs for mistakes. Robert Green, an
accountant who heads GreenTraderTax, a tax preparer for more than
1,000 investors, urges taxpayers to double-check brokerage cost-basis
reports against their own records. "Often the 1099-Bs don't
match trading logs," he says, especially for frequent traders.
In some cases, he has seen income over- or understated by $10,000
or more. Problems arise most frequently with wash-sale reporting,
he says. Investors subject to the new reporting should think twice
before filing early, says Mr. Green's partner, Darren Neuschwander.
Last year, some clients received five corrected versions of the
same 1099-B, he says. Early indications are there will be many corrected
forms this year, too, he adds.
- Barron's (10/20/12) "Taxing
Start for Brokers" (Electronic Investor), By Theresa Carey.
Ms. Carey writes about a new report from Celent that justifies what
we have been saying about this cost-basis reporting problem, all
along. In her article above, Ms. Carey writes "We found some
helpful information about the whole issue from Robert Green, a CPA
who focuses on traders. His Website (greencompany.com) includes
an education center, which features blog posts and Webinars on the
subject."
- Wall Street Journal Blog (5/3/12) "IRS
Delays Cost-Basis Reporting for Bonds and Options" (Total
Return), By Laura Saunders. Quoted Neuschwander for this important
story update. Green NFH may be succeeding in getting the IRS to
offer relief.
- Wall Street Journal (3/30/12) "Last-Minute
Tax Tips" (Tax Report), By Laura Saunders. Green &
Neuschwander are pushing top tax writers to advance the story.
- Barron's (3/24/12) "Tax
Filing on Trades: It May Pay to Wait" (Electronic Investor),
By Theresa Carey. Long interview with Green & Neuschwander.
- Active Trader (3/27/12) "Traders
face new tax-reporting requirements and problems with 1099-Bs,"by
Robert Green, CPA
- Wall Street Journal (3/14/12)
"Dodging
a 'Cost Basis' Crisis" (Getting Going), By Karen Blumenthal.
Green & Neuschwander are breaking the story about botched 1099-Bs,
apples and oranges and a tax filing stalemate. Our angle to this
story is just getting out. If you are in the media, please contact
us to discuss this story soon.
AICPA Form 8949 Task Force is pressing the IRS for relief:
Petition on RallyCongress.com:
Solutions from GreenTraderTax:
- Consultations.
Contact Robert Green, CPA to discuss cost basis, Form 8949, botched
1099-Bs, trader tax status, Section 475 MTM, entities and more.
- TradeLog
trade-accounting software provides the correct tax reporting information.
It generates a Form 8949 and helps you narrow the discrepancies.
- TradeLog
Accounting Service. For help with TradeLog, figuring out Form 8949
discrepanies, or to have our specialists handle this part of your tax
return.
- Tax
Compliance (Preparation). Let us handle your entire tax return filing
to be sure all is in order and you get maximum trader tax status or
investor tax status benefits.
Cost-Basis Reporting
Problems and Solutions
If you trade or invest in securities, you need to learn about “cost-basis
reporting,” a new set of IRS rules for taxpayers starting with 2011
tax filings. Previously, taxpayers could simply enter their capital gains
and losses (proceeds, cost basis and holding period) onto Schedule D of
their individual income tax return. That’s no longer allowed, so
2011 and 2012 tax returns are proving to be a challenge.
Under the new cost-basis reporting regime, taxpayers must decipher broker-provided
Form 1099-Bs. In tax years prior to 2011, taxpayers and their accountants
could easily use a Form 1099-B to enter proceeds from each securities
sale on their Schedule Ds. Taxpayers then entered their own record of
cost-basis information and they were finished. Investors often looked
up the original purchase price in an earlier brokerage statement and considered
stock splits or other corporate actions, which are rare. Active traders
generally used software like TradeLog,
which downloaded all trade executions and provided an easy-to-use Schedule
D-1 attachment.
You would think that when brokers entered the picture providing cost-basis
information to taxpayers and the IRS on Form 1099-Bs, taxpayer compliance
would be easier. You would be very wrong! (I explain this problem in an
interview for MoneyShow.com: “Tax
Flubs That Can Cost You Thousands.”)
Take one look at your 2011 Form 1099-B and you will see the problem. While
stock proceeds may look the same as prior years, the new cost-basis information
is extremely confusing. Some brokers mark cost information with quirky
new codes like P (provided to the IRS), N (not provided to the IRS) and
W (wash sales). Some brokers do not provide totals for the amounts they
are reporting. Plus there are covered securities, non-covered securities
and other. All individual trades must be entered on the new 2011 tax form
8949, which includes Parts A (proceeds and cost basis both reported to
the IRS), B (proceeds reported to the IRS but not cost basis) and C (other
or not reported on a 1099). Separate Form 8949s must be filed for short
term and long term. Add it up: That’s up to six different categories
on the Form 8949s instead of the single Schedule D required in the past.
This is a huge burden and is very confusing for taxpayers.
That’s just a fraction of the problem. Many brokers are using back-office
accounting solutions that may botch wash-sale reporting, since they have
not focused on it much in prior years, and some are omitting 2010 wash
sale cost basis deferred into 2011. Also, most brokers rushed 1099-Bs
to the printer before doing an end-of-January wash-sale calculation. In
addition, the rules brokers are required to follow for 1099-B reporting
are different from the rules for taxpayers: Most brokers report wash sales
between “identical positions” (the same symbol only), whereas
taxpayers are required to report wash sales between “substantially
identical positions” (such as between stocks and options). How can
the IRS ask brokers and taxpayers to report wash sales differently? Even
if brokers get everything right, broker-provided wash sales would still
be wrong because they only report wash sales in one account, whereas a
taxpayer must report them across all taxable accounts, including IRAs.
(For more details, see our March
20 blog.)
Using a 1099-B for wash sale reporting is a big mistake. IRS cost-basis
reporting rules state that taxpayers should not rely on 1099-Bs for tax
reporting purposes. What? (Read more about this concept on our Aug
16 12 blog - Why do forex forward dealers issue 1099s, yet retail
spot forex brokers do not?)
Phasing in the rules seems to be part of the problem. While the IRS phased
in the new rules for brokers, it did not do so for taxpayers. The IRS
is giving taxpayers the difficult job of deciphering all the inevitable
discrepancies between 1099-Bs and Form 8949 results.
What should you do?
We suggest reading our blogs on this saga to understand the new IRS rules,
how 1099-Bs are constructed and how you should handle Form 8949. We recommend
using software like TradeLog and filing an extension.
For the 2011 tax-filing season — which ended on the extension deadline
of Oct. 15, 2012 — IRS relief never came, and most brokers were
not able to sufficiently correct their 1099-Bs. We filed 2011 tax returns
as explained in our blogs below, and attached a suggested footnote explanation.
- Aug
29 12 - An update note to tax preparers and traders about incorrect
1099-Bs and 2011 tax filings
- Aug
17 12 - Tax Return Footnote: 2011 Form 8949 and Cost-Basis Reporting
Rules
- Jul
11 12 - Cost-Basis Reporting Update: How To File Form 8949 With
1099-B Differences
Ways to avoid Form 8949
Business traders qualifying for trader
tax status are entitled to elect Section
475 mark-to-market (MTM) accounting on a timely basis (by April 15,
2013 for the 2013 tax year). Section 475 business trades are reported
on Form 4797 Part II (ordinary gain or loss) and not on Form 8949. Although
Section 475 extricates traders from the compliance headaches of Form 8949,
it does not change their preferred solution. Either way, traders should
use TradeLog software to download their trades and calculate their required
trade-by-trade gain or loss. Another way out of Form 8949 is to use an
entity, which we recommend for business traders to reduce red flags on
trader tax status. The IRS does not currently use Form 8949 on entity
tax returns.
We recommend a Section 475 MTM election for business trading in securities
only. We don’t recommend Section 475 MTM for Section 1256 contracts
– which you are permitted to exclude from the Section 475 MTM election
- so traders don't lose lower 60/40 tax rates (currently up to 12% less).
Don’t worry, Section 475 MTM is not permissible on segregated investments,
so traders can enjoy tax deferral at year-end, and also hold for 12 months
to generate lower long-term capital gains rates (currently up to 15%).
Section 475 MTM reports both realized and unrealized gains and losses
at year-end.
Be prepared for similar problems for 2012 returns
More cost-basis reporting items will be phased in for 2012 returns. Per
Fidelity’s “Frequently
asked questions about cost basis”: "On January 1, 2012,
the second phase of the cost basis tax reporting requirements goes into
effect. This next phase impacts reporting of securities eligible for average
cost including mutual funds, exchange-traded funds (ETFs) classified as
registered investment companies, and dividend reinvestment plans (DRIPs)."
We are working on mutual fund bifurcation tax issues, and we plan to publish
a separate blog on that subject soon.
We expect some brokers to compound wash sale loss problems from 2011
into 2012. If brokers only report potential wash sales in 2011 and 2012,
they may not connect the years and related wash sale loss reporting problems,
although that reporting is basically useless to taxpayers. Conversely,
if brokers report overstated 2011 wash sales as part of 2012 cost basis,
it will lead to overstating cost-basis in 2012, which then will lead to
understating taxable income. We won't know if this will happen until our
CPAs start seeing 2012 Form 1099-Bs. Stay tuned.
Webinars
on cost-basis reporting, Form 8949, botched 1099-Bs and
unreconcilable differences are all must viewing for securities traders,
brokers, tax preparers, the media and IRS.
Thursday, August 16, 2012, 1:15 PM - 2:30 PM EDT
Updates: Trader Tax, Form 8949 vs. 1099-B problems, Forex &
Investment Management
Host Robert A. Green, CPA and brief update on investment management from
Brent Gillett, Attorney (at 52 minutes into the session).
Click
here to download or stream (235 MB, approx time 1:30). Sorry,
you may need GoToMeeting.com/codec
plug-in for PC users (see note).
Click here for the
full description and to register.
Special Webinar Notes: Green showed and discussed our new "Tax
Return Footnote: 2011 Form 8949 and Cost-Basis Reporting Rules" which
we just published in our "2012
GTT Guide: 2011 Tax Return Examples for Securities Traders (Individual
and Entities)." TradeLog users need this footnote with Form 8949.
See a wonderful new testimonial
about TradeLog and our advice here. Green also discussed a similar issue
about 1099 confusion for forex forwards on our blog today "Why
do forex forward dealers issue 1099s, yet retail spot forex brokers do
not?"
Tues., Jul 17, 2012, 4:15 PM - 5:30 PM EDT
Cost-Basis Reporting Update: How To File Form 8949 With 1099-B
Differences
Click
here to download or stream (301 MB, time 1:30).
Click
here for our blog update on this subject. It includes the Webinar
FAQs, including the answers.
Wednesday, March 28, 2012, 1:00 - 2:15 pm EST
Botched 1099-Bs, Form 8949 Differences, Tax Prep Tips, Extensions
& MTM Elections
Panelists: CPAs Robert Green, Darren Neuschwander of GreenTraderTax
Click
here to download or stream (189 MB Windows Media Player wmv file).
Sorry, our recording requires the GoToMeeting.com/codec
plug-in beforehand for PC users.
Click here for the invitation with
Webinar description.
Comment: See the smoking gun on botched 1099-Bs, broker-provided
realized capital gain and loss reports, and problem Form 8949s. After
seeing this Webinar, you will be convinced that you must file an extension
and get more relief from brokers and the IRS. Please sign our Petition
and share this Webinar and Petition with your broker and other traders.
Also, watch the related Webinar done for TradeLog on March 27, below.
Tuesday,
March 27, 2012, 1:00 - 2:00 pm EST
Tax Strategies and Solutions - Featuring CPAs Robert Green and Darren
Neuschwander of GreenTraderTax!
Panelists: Robert Green and Darren Neuschwander of GreenTraderTax, and
Jason Derbyshire of TradeLog
Hosted by TradeLog
Click here to
watch the recording on our "TradeLog for GreenTraderTax" landing
page.
Tuesday, March 20, 2012, 1:00 - 2:15 pm EST
Learn How To Use TradeLog to Deal with Cost-Basis Reporting Problems
on 2011 Tax Returns
Panelists: CPAs Robert Green, Darren Neuschwander of GreenTraderTax and
Jason Derbyshire of TradeLog
Click
here to download or stream (134 MB Windows Media Player wmv file).
Click
here for the email invitation with description.
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