The tax season is rapidly coming to an end, and many stock and option traders are scrambling to complete an accurate IRS Form 8949 for reporting their capital gains and losses on Schedule D. The problem is that many of these traders used their 1099-B reports to estimate their taxes and may have underestimated what they really owe.
The culprit is that most broker 1099-Bs are not adequate for filing an accurate tax return, nor were they designed for that purpose. How can that be? The simple fact is that there are different IRS rules for taxpayers than there are for the brokers, mostly related to the wash sale rules.
Therefore, under certain conditions you may not be able to rely solely on what your broker reported on your 1099. We have repeatedly brought attention to this problem, yet many traders continue to rely on inaccurate reporting. To compound the matter, many trader and tax websites have misled the public in this regard.
Do a quick internet search on the subject and you will find many sites that make the erroneous recommendation to simply take your broker provided 1099-B and use it verbatim to file your taxes. What they don't tell you is that if you traded in more than one account, if you traded options, or if one or more of your accounts is an IRA, then what you may have estimated for capital gains and losses back in April may put you into a penalty situation when you finally file your taxes in October.
These situations are not isolated. Many users of TradeLog software have reported that their 1099-B was way off. Some have even had to redo their tax returns for one or more years due to an audit.
"You can trust everything you read on the internet" said a recent tongue-in-cheek TV commercial. And how true that has proved to be when it comes to tax advice - where there is no lack of misinformation!
Why not protect yourself by learning as much as you can about the wash sale rules and other tax laws applying to traders, and then take appropriate action to correctly report your capital gains. Our tradelogsoftware.com website provides an abundance of resource material on this subject, as well as providing the most accurate trader tax solution.