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Question on 1099B - selling stocks


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6 replies to this topic

#1 548ficoNtexas

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Posted 25 January 2012 - 11:41 AM

I wasnt sure this was the right forum or if anyone could even help me. I have a question on the 1099B we received regarding sell stocks we owned and the capital gain, even though we re-invested and bought more stocks. If anyone is "savvy" in this field I will post all the details. I am taking our taxes to a CPA but we have to wait on more things to come in the mail, but just wanted some info on this 1099B.

TIA



#2 TroyP

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Posted 25 January 2012 - 01:46 PM

The 1099-B has changed somewhat... Once upon a time, the 1099-B just reported the gross proceeds from stock sales to the IRS. Now the 1099-B reports both gross proceeds from stock sales, as well as the "tax basis" related to those proceeds. The tax basis is essentially your cost of the shares, net of any adjustments for tax purposes.

The IRS would verify that the total proceeds from stock sales reported by your investment company agreed with the amount of any proceeds reported on your return. The IRS is now phasing in basis reporting, to ensure that the amount of the gain or loss reported on your return is correct.

The 1099-B reports any sale of a stock, bond, or mutual fund, regardless of what you did with the money. If you sold $1000 in Microsoft stock, and purchased $1000 in Apple stock with the proceeds, $1000 in proceeds would still be reported as the proceeds from this transaction. On Schedule D of your tax return, you must report $1000 in proceeds from the sale of Microsoft stock, and the amount of any capital gain or loss realized on the sale of those shares. The total gains and losses from all your securities sales for the year are netted, and you pay income tax on any net capital gain. If the net result is a loss, up to $3000 can be deducted from your taxable income, with any excess carried forward to the following year.

The fact that you re-invested the $1000 proceeds from the sale has no bearing on whether or not the sale needs to be reported on your return, or recognized as income.

It's actually much more complex than that, since short-tern and long-term gains are taxed at different rates, and wash sales can cause a loss on the sale of certain securities to be deferred, but that should be a pretty good primer.

#3 548ficoNtexas

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Posted 25 January 2012 - 02:16 PM

The 1099-B has changed somewhat... Once upon a time, the 1099-B just reported the gross proceeds from stock sales to the IRS. Now the 1099-B reports both gross proceeds from stock sales, as well as the "tax basis" related to those proceeds. The tax basis is essentially your cost of the shares, net of any adjustments for tax purposes.

The IRS would verify that the total proceeds from stock sales reported by your investment company agreed with the amount of any proceeds reported on your return. The IRS is now phasing in basis reporting, to ensure that the amount of the gain or loss reported on your return is correct.

The 1099-B reports any sale of a stock, bond, or mutual fund, regardless of what you did with the money. If you sold $1000 in Microsoft stock, and purchased $1000 in Apple stock with the proceeds, $1000 in proceeds would still be reported as the proceeds from this transaction. On Schedule D of your tax return, you must report $1000 in proceeds from the sale of Microsoft stock, and the amount of any capital gain or loss realized on the sale of those shares. The total gains and losses from all your securities sales for the year are netted, and you pay income tax on any net capital gain. If the net result is a loss, up to $3000 can be deducted from your taxable income, with any excess carried forward to the following year.

The fact that you re-invested the $1000 proceeds from the sale has no bearing on whether or not the sale needs to be reported on your return, or recognized as income.

It's actually much more complex than that, since short-tern and long-term gains are taxed at different rates, and wash sales can cause a loss on the sale of certain securities to be deferred, but that should be a pretty good primer.

Troy,
THanks for all that. Here is the situation it shows $35,116.36 as long term gain but $128.95 as short term gain. So we are going to be taxed on the $35K even though we didn't cash it out "per say" we re-invested it in different stock. This tax reporting statement from Fidelity is very confusing. The 1099-DIV and 1099-INT are easy to read but this 4 page 1099-B* is totally confusing. I guess I should just leave it alone and go to a CPA i'm driving myself crazy trying to figure it out.

#4 Kevin20

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Posted 25 January 2012 - 09:42 PM

Troy,
THanks for all that. Here is the situation it shows $35,116.36 as long term gain but $128.95 as short term gain. So we are going to be taxed on the $35K even though we didn't cash it out "per say" we re-invested it in different stock. This tax reporting statement from Fidelity is very confusing. The 1099-DIV and 1099-INT are easy to read but this 4 page 1099-B* is totally confusing. I guess I should just leave it alone and go to a CPA i'm driving myself crazy trying to figure it out.



Troy already addressed your confusion there. There is no "re-investing". You sold stock, so you realize a capital gain and that is taxable income. You cashed out, period. What you did with that money after that does not matter. There is no tax break for "re-investing" the proceeds into another stock. You're suffering a serious misconception if you thought there was. Good grief the government would lose half its tax revenue if it allowed stock traders to defer taxes like that. People like Warren Buffett and Mitt Romney would be paying zero percent taxes instead of their notorious 15% tax rate if we allowed that.

In the world of real-estate there is a tax-deferment like that, called a 1031 exchange. There is NOT a 1031 exchange in the world of the stock and bond markets. Sorry to say it but you owe some tax buddy.

#5 Kevin20

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Posted 25 January 2012 - 09:44 PM

Troy,
THanks for all that. Here is the situation it shows $35,116.36 as long term gain but $128.95 as short term gain. So we are going to be taxed on the $35K even though we didn't cash it out "per say" we re-invested it in different stock. This tax reporting statement from Fidelity is very confusing. The 1099-DIV and 1099-INT are easy to read but this 4 page 1099-B* is totally confusing. I guess I should just leave it alone and go to a CPA i'm driving myself crazy trying to figure it out.



Note -- the difference between long-term and short-term cap gains is simply in the tax rate ... which is lower for long-term gains. But it's not tax-free or tax-deferred. 'Fraid not.

Edited by Kevin20, 25 January 2012 - 09:45 PM.


#6 548ficoNtexas

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Posted 26 January 2012 - 11:03 AM


Troy,
THanks for all that. Here is the situation it shows $35,116.36 as long term gain but $128.95 as short term gain. So we are going to be taxed on the $35K even though we didn't cash it out "per say" we re-invested it in different stock. This tax reporting statement from Fidelity is very confusing. The 1099-DIV and 1099-INT are easy to read but this 4 page 1099-B* is totally confusing. I guess I should just leave it alone and go to a CPA i'm driving myself crazy trying to figure it out.



Note -- the difference between long-term and short-term cap gains is simply in the tax rate ... which is lower for long-term gains. But it's not tax-free or tax-deferred. 'Fraid not.

Kevin,
Sorry this is all new to me. I went to a CPA and it's not as bad as I thought, we owe the IRS $5800 which sux because we paid in almost $40K in federal witholding but it could have been worse. THanks for taking time to explain.

#7 Kevin20

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Posted 26 January 2012 - 01:51 PM

Sorry this is all new to me. I went to a CPA and it's not as bad as I thought, we owe the IRS $5800 which sux because we paid in almost $40K in federal witholding but it could have been worse. THanks for taking time to explain.



Well sometimes you just have to learn by doin'. I've learned a few hard lessons along the way.




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