Form 1099-B is a document used by the Internal Revenue Service (IRS), a federal agency that collects and processes tax payments in the U.S., to record income other than salaried wages. It lists earnings and losses from brokered or bartered transactions, such as the sale of stocks or bonds or the exchange of goods and services via trade over a 12-month period. A brokerage or barter exchange is required to send this form to each person for whom they have processed a sale, and those individuals must include it with their tax filings by 15 April, which is the tax deadline in the U.S.
For investors, the document discloses the size of capital gains and profits from the sale of property or securities. It contains descriptions of the investments, the date on which the securities were purchased and for what price, the price at which investments were sold, and the profits earned less any commission costs. It also indicates whether someone experienced a capital loss, which occurs when a security or asset is sold for a lower price than it original cost.
Form 1099-B also covers the bartering, or trade, of services or property in a commercial setting. People are required to report the fair market value, which is a reasonable price for goods or property received, as income on the form. Barter exchanges performing more than 100 deals in a year are required to distribute the form to the traders, and they can be fined if they don't. A separate form has to be filed for each exchange.
Capital gains or losses carry through to two other tax documents: Form 8949 and Schedule D Form 1040. Recipients of Form 1099-B started filing Form 8949s beginning in tax year 2011 when changes to cost basis rules were implemented. Cost basis reflects the original price paid for a security adjusted for any price manipulations, such as stock splits or dividends.
If someone's capital losses exceed his capital gains, he can use the difference between the two items as a deduction on his tax return. This lowers the amount of income on which he is taxed. There is a limit on the amount of capital losses that can be deducted each year, but if a person's losses exceed that amount, he can carry the excess over to the following year and apply the deduction then.
The Reason For the Form
Originally, the IRS required investors to disclose the cost basis of financial securities. That meant that they had to document the prices paid for securities to accurately report the size of profits or losses. If a person intentionally or unintentionally understated his profits, he had a smaller tax obligation. If he accidentally overstated it then he owed the IRS too much.
After the 2011 tax year, which included the income and expenses from that year, but was actually reported in 2012, the rules changed. Stock brokers were required to document the price that clients paid for financial securities. The form was expanded to include additional information, like whether brokers really have the cost basis for securities sold by clients.
While brokers must track the cost basis for stocks, bonds, options, and mutual funds, they are not responsible for the monitoring the cost for Exchange-Traded Funds (ETFs), which are index funds that contain many securities and which can be bought and sold like stocks. Some brokers choose to track ETF cost basis while others do not. Brokers are also asked to assess whether a client's earnings are short-term or long-term capital gains, based on how long the investment was held for.
Form 1099-B covers income from the sale of brokered or bartered assets during the previous calendar year. All brokers must file this form for each sale they broker between 1 January and 31 December, though multiple sales for one seller can be combined on one document. A copy must be sent to the seller by 15 February of the following year. To complete Form 1099-B, a brokerage firm or barter exchange must have personal detail about a client, including his name, address, and Social Security Number (SSN). Sellers who complete sales with multiple brokers or barter exchanges during the same calendar year receive multiple forms.