Proceeds from Broker and Barter Exchange Transactions
Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” is a tax form used by brokers or barter exchanges to report the sale or exchange of securities, commodities, or other property to their customers and the Internal Revenue Service (IRS). The form provides information about the sale or trade of various assets that may be necessary for a taxpayer to report on their income tax return. This form is part of the 1099 series, which are used to report various types of income that individuals may receive throughout the year other than salary from an employer. It is an essential document for tax reporting purposes, ensuring that interest income is correctly reported to the IRS.
Per the IRS, a broker or barter exchange must file this form for each person:
- For whom it sold stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, etc., for cash;
- Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806; or
- Who exchanged property or services through a barter exchange.
- Why do you need to file a 1099-B?
- Who Needs to File a 1099-B?
- Are there any exemptions to filing a 1099-B?
- What is the deadline for filing a 1099-B?
- What is required to file a 1099-B?
- What are the penalties for 1099-B?
- Do you need to e-file a 1099-B?
- Is state filing required for the 1099-B?
- What elements make up a 1099-B form?
- Can you correct a 1099-B?
Why do you need to file a 1099-B?
Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” is essential for several reasons related to tax compliance and accurate reporting of financial transactions. Here’s why the 1099-B needs to be filed:
IRS Reporting Requirement
- Brokers and barter exchanges are mandated by the IRS to report certain transactions to both the IRS and the individual or entity on whose behalf the transaction was conducted. This ensures that the IRS is aware of taxable events that may affect an individual’s or entity’s tax obligations.
Capital Gains and Losses
- When an individual or entity sells or trades stocks, bonds, or other securities, they may incur a capital gain or loss. The 1099-B provides detailed information about these transactions, which is used to determine the amount of capital gain or loss that needs to be reported on the tax return.
- The 1099-B often includes information on the cost basis of sold securities, which is crucial for determining the taxable amount of the sale. This assists taxpayers in accurately calculating and reporting their capital gains or losses.
- By receiving Form 1099-B, taxpayers are reminded of the transactions they’ve conducted throughout the year, ensuring that they don’t inadvertently omit reporting any taxable events on their tax returns.
- In situations where goods or services are traded (bartered) without cash exchange, the value of what was received can still be considered taxable income. Form 1099-B helps report the fair market value of goods or services received in barter exchanges, ensuring taxable events in the bartering economy are accounted for.
Tracking and Verification
- The form provides a means for the IRS to track and verify reported income and transaction details, ensuring taxpayers pay the correct amount of tax related to their sales and trades.
- Brokers and barter exchanges that fail to issue the required 1099-B forms might be subject to penalties. Similarly, taxpayers who fail to report transactions that appear on 1099-B forms might face penalties for underreporting income.
In summary, Form 1099-B plays a vital role in the tax reporting process for both brokers/barter exchanges and taxpayers. It promotes transparency, ensures tax compliance, and aids in the accurate calculation and reporting of capital gains and losses.
Who needs to file a 1099-B?
Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” is provided by:
Any broker who sells stocks, bonds, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, or securities futures contracts for a customer will need to file a 1099-B.
These are organizations that provide a marketplace or platform for parties to trade goods and/or services without money. Such exchanges must file a 1099-B for each person who either receives property or services through a barter exchange.
Multiple Accounts or Multiple Brokers
If a person has multiple accounts with a broker or accounts with multiple brokers, they might receive multiple 1099-B forms.
While brokers and barter exchanges issue and file the 1099-B, it’s the taxpayer’s responsibility to report the transactions detailed on the 1099-B on their tax return. This is typically done using Form 8949 and Schedule D, which are then attached to Form 1040.
It’s essential for brokers and barter exchanges to be aware of their obligations and for taxpayers to understand the implications of receiving a 1099-B. Both parties should consider consulting with tax professionals to ensure they meet all tax-related responsibilities.
Are there any exemptions to filing a 1099-B?
Yes, there are specific situations where brokers might not be required to file Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” even if a sale or transaction occurred. Here are some of the common exemptions:
Sales of Shelf Space (Slotting Fees)
- Some retail product providers pay fees to certain retail establishments for preferred shelf space. Such fees, often called “slotting fees,” are not reported on Form 1099-B.
Sales of Warehouse Receipts
- Sales of warehouse receipts issued by licensed warehouses that are for the storage of fungible commodities are typically exempt from reporting.
- Payments by an obligor of a security are exempt from reporting if the broker knows that the customer is the obligor of the security.
- Certain entities are generally exempt from Form 1099 reporting. For Form 1099-B, this includes corporations, but there are exceptions, such as corporations that have had reportable barter exchange transactions.
Certain Regulated Futures or Foreign Currency Contracts
- Transactions for customers who are foreign individuals and who have furnished brokers with the appropriate documentation may be exempt.
Sales of Collectibles
- Sales of certain collectibles, such as coins or art, directly by the owner are not reported by brokers. However, if sold at an auction or through a broker, the transaction may be reportable.
Transfers as Part of a Service Agreement
- Some transfers of securities may not be subject to reporting if they are part of a service agreement between an individual and a broker.
Transactions in IRAs or Other Retirement Plans
- Sales or exchanges that occur within certain retirement accounts like IRAs might not require a separate 1099-B because they are typically not taxable events.
What is the deadline for filing a 1099-B?
The deadline for filing a 1099-B can vary based on the several factors:
Sending to Recipients
- The 1099-B form should be furnished to the recipient by January 31 of the year following the payment year.
Filing with the IRS
- If you are filing on paper, the 1099-B forms should be submitted to the IRS by February 28 (or the last day of February) of the year following the payment year.
- If you are filing electronically, the deadline extends to March 31 of the year following the payment year.
However, if any of these dates fall on a weekend or a holiday, the deadline may be extended to the next business day. Additionally, if you discover an error after the initial filing, there are separate deadlines for corrected 1099-B forms.
Remember, missing these deadlines can result in penalties, so it’s crucial to stay informed and act timely.
What is required to file a 1099-B?
To file a Form 1099-B, you will need certain information about both the payer (the person or business making the payment) and the recipient (the person or business receiving the payment). Here’s what is required to file a 1099-B:
Information about the Payer (Your Information)
- Payer’s Name and Address
- Provide your legal business name and mailing address.
- Payer’s Taxpayer Identification Number (TIN)
- This could be your Employer Identification Number (EIN) or your Social Security Number (SSN), depending on your business structure. If you’re a sole proprietor, you might use your SSN; if you’re a business entity, you’d use your EIN.
- Payer’s Phone Number
- Include a phone number where the payer can be reached.
Information about the Recipient
- Recipient’s Name and Address
- Provide the legal name and mailing address of the individual or business receiving the payment.
- Recipient’s Taxpayer Identification Number (TIN)
- This could be the recipient’s Social Security Number (SSN) if an individual or their Employer Identification Number (EIN) if a business entity.
Form specific information
- Box 1a – Description of property
- Box 1d – Proceeds
What are the penalties for 1099-B?
Please see the penalties section for details.
Do you need to e-file a 1099-B?
Please see the e-file section for details.
Is state filing required for the 1099-B?
Currently, 1099-Prep does not support state filing for the 1099-B form. If you have a filing obligation in multiple states or are unsure about the rules for a specific state, it can be quite challenging to keep track of all the requirements. It’s advisable to consult the revenue department website of the relevant state(s) or work with a tax professional who’s knowledgeable about state filing requirements.
What elements make up a 1099-B form?
The 1099-B contains several boxes, each designed to report specific types of income or information. Here is a breakdown of the boxes on the 1099-B:
- Box 1a – Description of property
- For stock and debt instruments, enter the issuer’s name and the number of shares or units you held that were exchanged. For stock, also enter the class or classes of stock (for example, preferred, common, etc.) that were exchanged, whether for cash or other property. Abbreviate the class to fit the entry. For example, enter “C” for common stock, “P” for preferred, or “O” for other. Also abbreviate pany subclasses.
- Box 1b – Date acquired
- Enter the acquisition date of any securities sold. Leave this box blank if:
- The securities sold were acquired on a variety of dates, or
- You check box 5 and do not choose to complete box 1b.
- Box 1c – Date sold or disposed
- For broker transactions, enter the trade date of the sale or exchange. For barter exchanges, enter the date that cash, property, a credit, or scrip is actually or constructively received.
- Box 1d – Proceeds
- Enter the gross cash proceeds from all dispositions (including short sales) of securities, commodities, options, securities futures contracts, or forward contracts. Show a loss, such as one from a closing transaction on a written option or forward contract, as a negative amount by enclosing it in parentheses.
- Box 1e – Cost or other basis
- Enter the adjusted basis of any securities sold unless the security is not a covered security and you check box 5. If you check box 5 and are not reporting basis, leave box 1e blank. Enter -0- in box 1e only if the securities sold actually had a basis of zero.
- Box 1f – Accrued market discount
- Enter the amount of accrued market discount.
- Box 1g – Wash sale loss disallowed
- Report wash sale loss amount disallowed. You must report any loss disallowed under section 1091 if both the sale and purchase transactions occur in the same account with respect to covered securities with the same CUSIP number.
- Box 2 – Type of gain or loss
- Determine whether the gain or loss is short-term or long-term under section 1222, and whether any portion of the gain or loss is ordinary. In making the determination, you must do the following.
- Consider any information reported on a transfer statement.
- Consider any information reported on Form 8937.
- Apply the rules for stock acquired from a decedent.
- Apply the rules for stock acquired as a gift.
- If a customer acquired securities that caused a loss from a sale of other securities to be both nondeductible under section 1091 and reported in box 5 of a 2013 or earlier Form 1099-B (or reported on a 2014 or 2015 Form 1099-B with code W in box 1f and an adjustment amount in box 1g), use the rules in section 1223(3) to determine the holding period of the acquired securities.
- In the case of a short sale, report whether any gain or loss on the closing of the short sale is short-term or long-term based on the acquisition date of the security delivered to close the short sale. Apply the rule in section 1233(d), if applicable.
Except as provided below, in addition to checking the applicable short-term or long-term box, you are required to check the “Ordinary” checkbox if all or a portion of the gain or loss may be ordinary. You may not report both short-term and long-term gain or loss on the same Form 1099-B.
- Box 3 – Check if Proceeds Are From Collectibles or From a QOF
- Check the “Collectibles” box if the proceeds you are reporting in box 1d are from a transaction involving collectibles. Check the “QOF” box if you are reporting a disposition of an interest in a QOF.
- Box 4 – Federal income tax withheld
- Enter backup withholding. For example, persons who have not furnished their TIN to you in the manner required are subject to withholding on certain amounts required to be reported on this form. This is called backup withholding.
- Box 5 – Noncovered security
- You may check the box if reporting the sale of a noncovered security. Do not check this box if reporting the sale of a covered security.
- Box 6a – Report to IRS proceeds
- Based on Box 1d, f you reduce gross proceeds by option premiums, check the second box in box 6. Otherwise, check the first box.
- Box 7 – Loss is not allowed based on amount in box 1d
- Enter in box 1d the aggregate amount of cash and the fair market value (FMV) of any stock and other property received in exchange for stock held in your custody. Also, check box 7.
- Box 8 – Profit or (loss) realized in current tax year on closed contracts
- Enter the profit or (loss) realized by the customer on closed regulated futures, foreign currency, or Section 1256 option contracts in current tax year.
- Box 9 – Unrealized profit or (loss) on open contracts
- Enter the unrealized profit or (loss) on open regulated futures, foreign currency, or Section 1256 option contracts at the end of last tax year. Do not include amounts related to contracts that were open on December 31, and were transferred to another broker during current tax year.
- Box 10 – Unrealized profit or (loss) on open contracts
- Enter the unrealized profit or (loss) on open regulated futures, foreign currency, or Section 1256 option contracts at the end of current tax year.
- Box 11 – Aggregate profit or (loss) on contracts
- Enter the aggregate profit or (loss) for the year from regulated futures, foreign currency, or Section 1256 option contracts. Use boxes 8, 9, and 10 to figure the aggregate profit or (loss).
- Box 12 – Basis reported to IRS
- Check this box if:
- You are not checking box 5, or
- You are checking box 5 but are reporting basis to the IRS in box 1e anyway.
- Box 13 – Bartering
- Enter the gross amounts received by a member or client of a barter exchange. This includes cash received, the FMV of any property or services received, and the FMV of any trade credits or scrip credited to the member’s or client’s account. However, do not include amounts received by a member or client in a subsequent exchange of credits or scrip. Do not report negative amounts.
- Box 14/15 – State/Payer’s State No.
- This box indicates the state for which the income and tax details are being reported. It will also include the payer’s state identification number, which is an identifier assigned by the state’s revenue or taxation department.
- Box 16 – State tax withheld
- Enter the state tax withheld in this box.
Remember, not all boxes will be filled out on every 1099-B form. Only the relevant boxes for the specific payments made will have amounts or indicators.
Can you correct a 1099-B?
Yes, you can correct a 1099-B. Please see the corrections and negations section for details.