Tax Reporting from Brokers: Understanding 1099 Forms and Cost Basis

Every year, around late January or early February, you’ll get a packet from your broker. It’s not a bonus check. It’s not a newsletter. It’s Form 1099-B - and if you ignore it, you could end up owing the IRS money you didn’t mean to owe.

This form isn’t optional. It’s mandatory. And it’s not just about how much you made or lost. It’s about proving to the IRS that you calculated your taxes right. The real challenge? Cost basis. If your broker gets it wrong, or if you don’t understand what’s on the form, you could pay thousands more in taxes than you should.

What Is Form 1099-B, Really?

Form 1099-B is the IRS’s way of tracking every stock, bond, option, or ETF you sold through a brokerage account. It’s not about dividends or interest - those show up on 1099-DIV and 1099-INT. This form is only for sales. Every time you sell something, your broker has to report it.

The IRS made brokers do this back in 2011, starting with stocks. By 2014, it covered mutual funds, bonds, and options too. Before that, you had to track every purchase yourself - the date, the price, how many shares. Now, your broker does most of it. But that doesn’t mean you can ignore it.

Here’s what’s on the form:

• Box 1a: What you sold - like "AAPL 100 shares" or "Vanguard Total Stock Market ETF"
• Box 1b: When you bought it
• Box 1c: When you sold it
• Box 1d: How much you got from the sale
• Box 1e: What it cost you (this is the cost basis)
• Box 1f: Any accrued interest or market discount

That’s it. Simple, right? But here’s where things get messy.

Cost Basis: The Most Important Number You’re Ignoring

Cost basis is what you paid for the asset - including commissions and fees - plus any reinvested dividends. It’s the baseline the IRS uses to figure out your profit or loss.

Let’s say you bought 100 shares of Tesla at $200 each in March 2023. That’s $20,000. You sell them in June 2024 for $250 each. That’s $25,000. Your gain? $5,000. Easy.

But what if you bought more Tesla at different times? Maybe 50 shares in January 2023 at $180, then another 50 in April 2023 at $220. Now you have two lots. Your broker might assume you sold the first ones you bought (FIFO - first in, first out). But what if you wanted to sell the more expensive ones to reduce your gain? That’s called specific identification.

Here’s the catch: your broker only uses specific identification if you give them written instructions before the trade. If you don’t, they default to FIFO. And FIFO might not be the best choice for your taxes.

One investor on Reddit spent three months fixing a mistake where his broker reported inherited stock with a $0 cost basis. He didn’t know he could step up the basis to the value on the date of death. That’s a $50,000 tax bill he almost paid because of a reporting error.

What Brokers Don’t Report - And Why You Need to Track It Yourself

Not everything your broker handles shows up on Form 1099-B. Here’s what’s missing:

• Retirement accounts: Sales inside IRAs or 401(k)s aren’t reported. You don’t pay capital gains tax on them until you withdraw.
• Transfers between brokers: If you moved shares from one broker to another, the new broker doesn’t know your original cost basis. They’ll report it as $0 or "unknown" - which means you’ll owe taxes on the full sale price.
• Gifted or inherited assets: The basis changes when you inherit something. Your broker won’t know the original purchase price unless you tell them.
• Wash sales: If you sell a stock at a loss and buy it back within 30 days, the IRS disallows the loss. Brokers are supposed to track this, but they often miss it if you trade across accounts or use different brokers.
• Cryptocurrency: Right now, crypto sales aren’t on 1099-B. But starting in 2026, that’s changing. You’ll need to track those sales yourself until then.

If any of these apply to you, you can’t rely on your broker. You need your own records - spreadsheets, transaction logs, screenshots of trade confirmations. Save them. You’ll need them when you file.

Why Brokers Get It Wrong - And How to Fix It

According to the National Association of Enrolled Agents, nearly 37% of tax pros say incorrect cost basis is the #1 problem their clients face on 1099-B forms. Why?

• Multiple purchases over years - especially with dividend reinvestment - create messy lots.
• Corporate actions like stock splits, mergers, or spin-offs confuse the system.
• Brokers use different methods. One might use FIFO, another average cost, another specific ID - even for the same stock.
• Transfers between brokers often lose basis data. You get a 1099-B with "basis not reported" - and now you’re stuck.

What to do if you spot a mistake?

1. Don’t file your taxes yet.
2. Call your broker. Ask for a corrected 1099-B. Be specific: "Box 1e is wrong for AAPL shares bought on 3/15/2022. The cost should be $185.20 per share, not $120."
3. Follow up in writing. Email them. Keep a copy.
4. If they don’t fix it in 30 days, file Form 843 with the IRS to explain the error and attach your records.

Some brokers charge fees for corrections. Others won’t respond at all. That’s why keeping your own records is non-negotiable.

How 1099-B Compares to Other 1099 Forms

It’s easy to confuse 1099-B with other forms your broker sends. Here’s how they’re different:

Notice anything? Only 1099-B tracks cost basis. That’s why it’s the most complex. The others just say, "Here’s the money you got." 1099-B says, "Here’s the money you got - and here’s what you paid. Now tell us the difference."

What’s Changing in 2025 and Beyond

The IRS isn’t slowing down. In 2024, they updated Form 1099-B to require reporting for corporate actions like stock buybacks or control changes. Brokers now have to report total basis in Box 1e when these happen.

And in 2026, crypto sales will join the list. If you traded Bitcoin, Ethereum, or Solana through a centralized exchange, your broker will start sending you a 1099-B. That’s a big deal. Millions of crypto traders have never tracked their basis. Now they will.

The SEC is also pushing for standardization. Right now, one broker might use average cost for your mutual funds, another uses FIFO. That creates chaos when you switch brokers. A new rule is coming to force all brokers to use the same method unless you choose otherwise.

But here’s the real threat: the IRS is cracking down. Penalty assessments for incorrect 1099-B filings jumped 28% from 2022 to 2023. They’re using automated systems to match your 1099-B to your Schedule D. If the numbers don’t add up, you get a notice. And that notice doesn’t ask nicely.

What You Should Do Right Now

Don’t wait until January. Here’s your checklist:

1. Log in to your brokerage account. Look at your 2024 trade history. Do you see any sales? Write them down.
2. Check your cost basis. For each sale, verify the purchase date and price. Did you inherit it? Did you reinvest dividends? Add those in.
3. Find old 1099-Bs. Go back five years. Did you transfer accounts? Did you sell something with an unknown basis? Flag those.
4. Use specific identification. If you plan to do tax-loss harvesting, send written instructions to your broker before you sell. Don’t assume they’ll guess right.
5. Save everything. Screenshots, trade confirmations, emails with your broker - keep them in a folder. You’ll need them if the IRS asks.

You don’t need to be a tax expert. But you do need to be careful. The IRS doesn’t care if you didn’t know. They just want the right number.

Frequently Asked Questions

Next Steps

If you’re just starting out: get organized now. Use a free spreadsheet or a tax app like Koinly or CoinTracker to log every trade. Even if you only trade once a year, you’ll thank yourself when tax season rolls around.

If you’ve already sold assets this year: pull up your 1099-B as soon as you get it. Compare it to your own records. Don’t trust the numbers. Verify them.

If you’re unsure: talk to a CPA who understands brokerage reporting. Not just any tax pro - one who’s handled 1099-B errors before. A mistake here isn’t a simple math error. It can trigger an audit.

Form 1099-B isn’t the enemy. It’s a tool. But like any tool, it’s only as good as the person using it. You’re not just filing taxes. You’re protecting your money. And that’s worth the effort.