tax forms for investors: 1099-B, 1099-DIV, 1099-INT

In short

A friend of mine once opened a brokerage envelope in February and felt his stomach drop. Three forms sat inside, and he had no idea which one mattered most. Here is the plain version. Your broker sends a 1099 B for sales, a 1099 DIV for dividends, and a 1099 INT for interest. Each one reports money you earned to you and to the IRS, so keep them all, because the IRS gets its own copy and will match it against your return. Check the numbers against your own records before you file. Something wrong? Ask the payer for a corrected form.

The whole of it

What it is

I once watched a neighbor spread a pile of paper across his kitchen table and sigh. You have probably done the same. Those papers were information returns, and they are far less scary than they look.

An information return is a form that a bank, broker, or fund sends to report what it paid you, and the IRS receives a copy too. That is why the numbers on your return should line up with what the payer already told the government.

Form 1099 B reports sales of stocks, bonds, mutual fund shares, and similar holdings in a taxable account. It lists what you got when you sold, what you paid, and the dates. Form 1099 DIV reports dividends and certain capital gain payouts from funds. Form 1099 INT reports interest, such as interest from a savings account, a certificate of deposit, or a bond.

None of these is a bill. Each is a report. The tax, if any, shows up only when you fill out your return.

How it works

If you are holding investments outside a retirement account, the payers track your activity all year long. After the year ends, they send a form to you and a copy to the IRS. Many brokers wrap all three forms into one long document, often called a consolidated 1099. The IRS describes these forms, and who must file them, in its General Instructions for Certain Information Returns.

On Form 1099 B, the key pieces are the proceeds, the cost basis, and the holding period. Cost basis is what you paid for the shares, plus certain costs. The gain or loss is the proceeds minus the basis. A holding period of a year or less is short term, while anything longer than a year is long term, and the two groups are taxed under different rules.

You report the sales on Form 8949, and the totals carry over to Schedule D. The IRS explains this in the Instructions for Form 8949 and the Instructions for Schedule D.

On Form 1099 DIV, ordinary dividends sit in one box. Qualified dividends sit in a separate box, and those can be taxed at lower rates. Capital gain distributions from funds are listed as well. Foreign tax paid shows up here too, and it can matter on your return.

On Form 1099 INT, you will find the interest paid to you. Interest from some government bonds and municipal bonds may be reported separately, since the tax treatment can differ. Read the box labels closely. The IRS posts Instructions for Forms 1099 B, 1099 DIV, and 1099 INT, and they explain each box.

One more point. A payer sends a form only once the amount reaches a set threshold. But the income is taxable even if no form arrives. A missing form does not make the income vanish.

The numbers, and where to find yours

Your own figures live in a handful of boxes. On Form 1099 B, look for proceeds, cost basis, and whether the basis was reported to the IRS. On Form 1099 DIV, find the ordinary dividends box, the qualified dividends box, and the capital gain distributions box. On Form 1099 INT, find the interest income box.

Several limits and rates are set by law and change over time. The long term capital gains rates depend on your taxable income, and the brackets move each year. The net investment income tax applies above a set income level, and that level is the current figure, which the official source publishes each year. The cap on deducting net capital losses against other income is the current figure, which the official source publishes each year a year. The dollar amount that triggers a payer to send a Form 1099 INT is the current figure, which the official source publishes each year. The site fills in each verified figure with its source and date.

Your forms usually arrive by mid February, and the IRS sets the deadline each year. Brokers sometimes send corrected forms later. Waiting for the corrected version can save you a headache, so check before you file.

A worked example

Let me tell you about a woman named Maria. She is a teacher who earns $52,000 a year and keeps a small taxable account. In February, her broker sent a consolidated 1099.

Her Form 1099 B showed one sale. She sold shares for $4,800 that she had bought for $3,900, and she had held them for 18 months. The gain was $4,800 minus $3,900, which is $900. Because she held them longer than a year, it was a long term gain.

Her Form 1099 DIV showed $310 in ordinary dividends. Of that, $240 was listed as qualified. The other $70 was plain ordinary. Check it: $240 plus $70 is $310.

Her Form 1099 INT showed $65 of interest from a savings account. Her total investment income for the year came to $900 plus $310 plus $65, which is $1,275. Not much, but it all counted.

Maria did not need to be a tax expert. She matched each box to her own records. Her basis matched her purchase confirmation, and her dividend total matched her year end statement. Then she entered each figure where the forms and instructions said to put it. Her return took one afternoon, and she felt a quiet pride about it. Small, steady work.

Where it goes wrong

I know a man who sold shares he had received as a gift. His broker did not have the original cost, so the basis box came up blank. He nearly reported a zero basis and paid tax on the whole sale, which can mean far more tax than the law asks for. Catch that, and you keep your money.

Basis trouble is a common snag on Form 1099 B, and the IRS instructions for Form 8949 spend real space on it. Shares moved from one broker to another can arrive without their cost history. Reinvested dividends add to your basis, and people forget them. Selling a holding at a loss and buying it back within thirty days can trigger the wash sale rule, which delays the loss. Your form may or may not show the adjustment, so read the notes.

Another trap is the late form. Brokers can issue a corrected 1099 after the first one, and if a filer sent in a return early, the filer may have to amend it. A few extra weeks of patience is often wiser.

Do not ignore small amounts. The IRS matches its copy against your return, and a missing $65 can still produce a notice. A notice is not a disaster. Still, it is easier to avoid.

Finally, a form can be wrong. If a number looks off, contact the payer and ask for a corrected form. Do not just change the number on your return and hope nobody notices.

Questions to answer before you leave this page

Have you gathered every 1099 from every bank, broker, and fund company that held your money last year? Do you know which of your accounts are taxable and which are retirement accounts, which do not send these forms the same way? Does the cost basis on each 1099 B match your own purchase records? Did you sell anything that was gifted or inherited, where the basis may be missing or different? Do your dividend and interest totals match your year end statements? Did a payer send a corrected form after the first one? Have you checked the IRS instructions for each form, or asked a tax professional, about anything that still looks strange to you?