Trade Stocks? These Forms Are Required to File Your Tax Return

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The last two years have been a baffling time for many in terms of trying to manage personal finances. It became an increasingly popular pursuit to attempt new money-making ventures during the pandemic, from unconventional side hustles to studied investing strategies. For stock traders, whether newbie or veteran, there are peculiarities that will require careful attention when filing your taxes.

Yes, filing taxes can be easy or frustratingly difficult. The one thing taxes aren’t is avoidable. Unless your investments are in retirement accounts like IRAs or 401(k)s, you must report all stock transactions to the Internal Revenue Service (IRS). To do so, you’ll need to be thorough and gather all the documents required — documents detailing investment information pertaining to your stock trading activities (and any associated dividends) for that tax year.

Regardless of your investment behavior — whether you prefer a traditional brokerage service or a mobile platform or app — you are due certain documents detailing your stock activities every tax year. You’ll get one 1099 document from each firm you dealt with (either in the mail or as a download), so you’ll need to wait until you get all your 1099s before you can correctly file your taxes.

1099s are divided into two categories, at least concerning investment income: the 1099-B is for investment sales and cost basis accounts including any wash sale violations, and the 1099-DIV is for dividends and capital gain distributions. Wash sales regulations require disclosure across all your and your spouse’s accounts.

Make Your Money Work For You

For next year, you should investigate more ways to reduce your taxable income, like contributing to a tax-advantaged retirement account, a health savings account and turning losing stock into tax-loss harvesting. Whether you are heavily invested in stock or not, a professional tax consultant or software service can help with these strategies when tax season arrives.

The excitement and enticement of trading and making money in stocks shouldn’t be dampened by the burden filing a tax return may bring. Having a sound tax strategy and gathering all the information you will need will not only keep you accountable, but improve the overall experience.

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