Many first-time investors can find tax-filing overwhelming, but it doesn’t have to be. To start getting a handle on this important duty, you’ll need to begin by learning about the 1099.
The 1099 is a reporting form sent out by brokerage firms and others to report non-salary income to the IRS. There are many types of 1099s, but Firstrade account holders are most likely to receive one or more of the following:
1099-DIV reporting brokerage account dividends and distributions, including your distributed share of mutual fund capital gains
1099-B reporting gains and losses from sales of investments (including derivatives)
1099-INT reporting interest paid on sweep accounts, money markets, bonds and more
1099-MISC to report prizes, such as the Firstrade raffle prizes and gifts
1099-R reports distributions from retirement accounts
Determining when to pay taxes for your brokerage(non-retirement) account
Most investors realize that if they sell an asset and take the money out of their portfolio, they may pay taxes on that transaction. But many don’t understand that they may also need to pay taxes when they sell assets in a portfolio, even if the proceeds haven’t been distributed.
The amount of taxes paid varies depending on the type of the investment income. For example:
Interest and dividends received within the account will likely be considered income. The tax rate of dividends is determined by the type of dividend (qualified or non-qualified) and your income tax rate. However, interest income is usually taxable at your ordinary income tax rate.
Account gains realized through the sale of investments will likely be subject to capital gains taxes. The tax rate will depend on whether the investor held the investment for a long-term (12 months or more) or a short-term (less than 12 months).
Long term investment: When you realize a gain after selling an investment you’ve owned for a year or more, then you’re subject to long-term capital gains tax rates, which are:
15 percent for single filers with an income of $80,000 to $441,449
Up to 28 percent for married filers earning $496,600 or more
Those earning less than the above amounts may not be subject to any long-term capital gains taxes.
Short term investment: Assets sold after being held for less than a year are subject to short-term capital gains tax rates, which are equal to income tax rates.
In the case of investment losses, you may be able to write-off up to $3,000 of losses against your other investment gains. Before doing so, review your transactions and make sure you haven’t run afoul of wash sale rules by repurchasing the same or similar holdings within 30-days before or after the date of the loss. Remember, you are still responsible to report any capital losses to your local tax authorities. For more information about tax-reporting, visit our Tax center.
How to Report 1099 Income
In most cases, brokerage firms send 1099 forms by February 15th of each year. If you are a Firstrade client, you should have received them in the mail or via email already. If you don’t remember receiving one and think you should have, don’t worry. Login to your account and download the form at: Account > E-Documents > Tax .
When it’s time to file your taxes in May, your reporting responsibilities for the 1099s vary depending on your status. If you’re using your exclusive Firstrade discount to get TurboTax software, the program will ask if you’ve received a 1099 and then provide instructions for importing the document. Login now to access more information about filing your taxes.