What are some major issues to be aware of when reporting stock sales on my tax return? Why have these issues arisen?
SPECIAL WEBINAR: Our webinar on how to avoid tax-return mistakes with equity comp and stock sales, including case studies from tax experts, is now available on demand. See the myStockOptions Webinar Channel for upcoming webinars and other past webinars on demand.
Major changes have occurred in tax-return reporting in recent years. The reporting on IRS Form 1099-B of the cost basis for stock sales changed a few years ago. The IRS continues to modify the Form 1040 tax return. The changes affect the reporting of stock sales. For details, see the FAQ on what's new for the 2022 tax season.
IRS Form 1099-B
Sent by brokers by mid-February, IRS Form 1099-B, or the broker's equivalent substitute statement, reports details about your stock sales. The information on Form 1099-B is sent both to you and to the IRS, though your broker may give you supplemental information beyond what is provided to the IRS. The 1099-B for stock sales made during 2021 closely resembles the version for the 2020 tax year.
IRS Form 8949 And Schedule D: Cost-Basis Confusion
Form 8949 is where you list the details of each stock sale, using the information on Form 1099-B. Schedule D aggregates the column totals from Form 8949 to report your overall long-term and short-term capital gains and losses. However, the cost-basis information sent to the IRS in Box 1e of Form 1099-B may be too low, or the box may be blank. Depending on your situation, this may be the case for any of several reasons:
- The rules for cost-basis reporting are mandatory only for stock acquired in 2011 and later, so the basis of stock acquired earlier may not be reported.
- Starting in 2011, brokers had the flexibility to include the compensation part of the basis in their reporting to the IRS. However, the rules changed. The final IRS regulations (pages 29–30) and the 1099-B instructions (page 10, under "Initial Basis") do not allow brokers to report the compensation portion at all for stock grants made on or after January 1, 2014.
- Therefore, for 2021 sales of company stock acquired from equity compensation and ESPPs, brokers can either (1) report the complete cost basis for pre-2014 grants, while reporting only the partial basis for later grants, or (2) report the unadjusted partial basis for all grants. To ensure that they consistently report all stock sales in the same way, most brokerage firms are following the second route.
- No basis is reported for restricted stock and RSUs, as they are not acquired for cash and are considered noncovered securities.
Actions To Take When Cost Basis Is Omitted, Too Low, Or $0
You don't need to get a corrected Form 1099-B from your broker, as the reporting is following the IRS rules. Instead, see our FAQ and brief video on how to handle Form 8949 when the cost basis on the 1099-B is wrong or omitted. Also review the FAQ on the compensation/W-2 income part of the tax basis. You will need that amount for your adjustment on Form 8949 if the basis on the 1099-B is too low.
Alert: It is up to you—not your company, your broker, or the IRS—to make any necessary modifications in your Form 8949. The special section Reporting Company Stock Sales on this site presents FAQs with annotated diagrams of Form 8949 and Schedule D. Each FAQ explains and illustrates a different reporting situation involving stock options, restricted stock, restricted stock units, performance shares, employee stock purchase plans, or stock appreciation rights. Clear instructions and diagrams show how to complete the forms, whether the cost-basis information reported to the IRS on Form 1099-B is accurate, too low, or omitted.