Dreaded Form 8949 with many trades

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  • #15018
    thales
    Participant

    I’ve always filed tax by hand. I keep a spreadsheet of all my stock trades in taxable account no matter how small.

    In 2020 I had a record number of trades (close to 200). Because of my meticulous records, the 1099 consolidated form I received shows very close figures to my own record (Yes, I verified them one by one by hand in two days!). The main discrepancies were result of some small Wash sales (some unwittingly)—because my own record does not account for any sale being wash sale. It seems when there is a wash sale, they (TD Ameritrade system) somehow adjusted the cost basis of ANOTHER sale of the same stock to “make up” for the difference (that’s why the discrepancy was exactly the amount of the wash sale loss).

    The discrepancy between 1099B and my own record is very small (about $300).

    My question is, is it OK if I simply use my own spreadsheet (which shows every single sale) for Form 8949 (which was what I always did in the past)–because it would be headache and almost impossible to make small corrections on my spreadsheet to reflect the small amounts of wash sales according to the 1099B ? I’m fine with paying a bit more tax resulted in the $300-ish discrepancy, right or wrong. If the IRS is to audit me, I’ll just send them copy of my 1099B and show them I actually paid more than my due.

    (I have never used tax software and never filed electronically, and intend to do so as long as it’s not mandatory)

    #15022
    thales
    Participant

    P.S.
    Or, can I just attach copy of the consolidated 1099 form instead of my spreadsheet? (But the 1099 form does not have the same columns as the 8949 form)

    #15094
    Kaye Thomas
    Moderator

    IRS provides exceptions to the need to list individual transactions on Form 8949. See page 3 of the instructions for that form. The first exception says transactions the broker has reported without certain adjustments can be aggregated and reported on a single line. Unfortunately, they don’t allow this for transactions showing a wash sale adjustment.

    The second exception says you can attach a statement containing all the same information in a similar format. Form 1099-B wouldn’t qualify as it doesn’t show all the same information: it omits gain or loss. Your own spreadsheet could qualify, but there’s a problem in that it doesn’t report wash sales.

    You say you would pay more tax, not less, when you ignore the wash sales. Normally the opposite is true, so this leads me to question whether there’s some other discrepancy between your spreadsheet and the report you received from the broker. Ignoring wash sales could lead to higher tax this year if you had wash sales last year, leading to higher adjusted basis for securities you sold this year. But in that case you would have underpaid tax last year.

    Is it just electronic filing you want to avoid? Or also using software to prepare your return? If the former, you can use software and opt for paper filing. If the latter, be aware you may be able to prepare your return manually while relying on special purpose software designed for the specific purpose of handling large numbers of securities trades.

    However, you still have the option of using your spreadsheet, without all the wash sale adjustments, if it provides the information required on Form 8949 and doesn’t result in a lower tax. IRS doesn’t officially permit this, but they also have better things to do than bother taxpayers who appear to be paying more than necessary.

    • This reply was modified 6 months, 2 weeks ago by Kaye Thomas.
    #15107
    thales
    Participant

    Thanks a ton for answering me in clear details, Kaye! Thank you for your time!

    Is it just electronic filing you want to avoid? Or also using software to prepare your return?

    Both! The reason is I am diligent in keeping detailed record on my spreadsheet so that I know & understand every part of my transactions. Also, for electronic filing and software, it’s likely to encounter problems such as now knowing which figure to enter for a specific entry, or which choice to make among several. You have to make yes/no, black/white decisions for every entry even when you aren’t sure. You can’t write explanations or add entries.

    Back to the problem:

    It turns out I was comparing only the Box A in my spreadsheet with the combined Boxes A and B in the 1099-B. I just checked again, and actually my Box A and 1099 for Box A has only a discrepancy of less than $20! I know my spreadsheet that doesn’t account for wash sales should show more gains than on the form 1099, but it seems somehow some of those “wash sales” were only “transient” (e.g. Bought several lots, then sold some shares at a price that is lower than some of the purchase prices within 30 days of buying other shares, and eventually sold all the remaining shares. So maybe some shares were regarded by the system as “wash”, but ultimately it didn’t matter?). So somehow, the total result of the form 1099 is almost the same as my spreadsheet, with only less than $20 more than mine. (I did verify that all the parts with discrepancies are ones with a “W” [wash sale] printed next to them.)

    There are a couple of “undetermined term” amounts of less than $5 for a certain ETF, which I have no idea what they are (they aren’t from my transactions, and are all dated the first day of a month). Since I held the ETF short term, I suppose they belong to short term?

    but they also have better things to do than bother taxpayers who appear to be paying more than necessary.

    I wonder if some IRS staff is annoyed by paper filings. I recently got an IRS letter about my 2018 tax return that says I owe some taxes. But their calculation was unbelievably ignorant and wrong. They used a cost basis for the gain. After I pointed out their mistake, they sent me a reply, not admitting their mistake, but simply says they needed to process “all your information” before resolving the matter. It seems as if they just wanted to find fault with me without basis. I wonder if it’s because they didn’t like my always filing paper return and attaching my own spreadsheet.

    Many thanks again!

    #17059
    walter1
    Participant

    It seems when there is a wash sale, they (TD Ameritrade system) somehow adjusted the cost basis of ANOTHER sale of the same stock

    That is how wash sale works. The “wash” adjustment nets the line to zero. Then that “wash” adjustment is added to the cost basis of the shares purchased within 30 days before or after; the irs thereby stipulating that a wash sale has occurred. The broker has added the wash adjustment to the cost basis of that other lot reported on the 1099-B. In this way, you automatically recover the excluded wash loss whenever that other lot is sold.

    example:

    qt sym acqui dispos procee costbasis Wash gainloss
    2 DOWN 2/27 03/17 $0.67 $241.22 $240.66W $0.00
    2 DOWN 03/09 03/20 $0.00 $31.33+$240.66 $0.00 -$271.99

    The second purchase of 2 DOWN really cost $31.33 as seen on the trade confirmation but, by the wash sale rule, the broker reported the cost as $271.99 (31.33+240.66). And that is why the cost doesn’t match the trade confirmation or spreadsheet. Now since all lots have been sold, the actual loss has been realized, so it was, as you say, transient.

    The 1099-B bottom line total cost basis is inflated by the sum of the washes so that bottom line proceeds – cost + wash = gain/loss.

    If the second purchase is a smaller quantity than the wash, the confusion could get multiplied, potentally affecting a 3rd lot within 30 days, and so on.

    Every time I go through these irs instructions I seem to learn something.

    Exception 2 in the 8949 instructions does say that you can attach a statement containing all the same information and in a similar format instead of form 8949.

    But pay attention to the bottom of form 8949 where it also says:

    Note: If you checked Box A above but the basis reported to the IRS was incorrect, enter in column (e) the basis as reported to the IRS, and enter an adjustment in column (g) to correct the basis. See Column (g) in the separate instructions for how to figure the amount of the adjustment.

    There is a similar note for long-term transactions.
    Page 8 of the 8949 instructions also adds:

    enter the basis shown on Form 1099-B (or substitute statement) in column (e), even though that basis is incorrect.

    Also pay attention to page 9 of the 8949 instructions:

    If you received a Form 1099-B (or substitute statement) and the amount of nondeductible wash sale loss shown in box 1g is incorrect, enter the correct amount of the nondeductible loss as a positive number in column (g). If the amount of the nondeductible loss is less than the amount shown on Form 1099-B (or substitute statement), attach a statement explaining the difference. If no part of the loss is a nondeductible loss from a wash sale transaction, enter -0- in column (g).

    This seems to be a lot of work if you want to comply with the instructions and also report a basis that is different from what is on the 1099 and a wash that is different than what is reported on 1099.

    On form 8949 it indicates an easier way:

    Note: You may aggregate all short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on Schedule D, line 1a; you aren’t required to report these transactions on Form 8949 (see instructions).

    There is a similar note for long-term transactions.
    In other words only need to report the lines with a code like W and unreported lines on 8949, especially if it will save you money. The rest of the short-term reported ones can be totalled on Schedule D line 1a. And likewise the long-term reported ones totalled on Sdhedule D line 8a. You should wind up with Schedule D line 7 matching the short-term gain/loss on the 1099, and likewise line 15 matching the long-term gain/loss on 1099.

    Re: “that certain ETF”
    If it is a grantor trust like GLD, SLV, GBTC, the odd transactions and the discrepancy might be due to them selling gold, silver, or bitcoin monthly to get dollars to pay expenses. It would also reduce the cost below the trade confirmation cost each time they do that for each lot for as long as you hold the lot. If it’s something like that, I could say more.

    Re: Not like efile
    I didn’t want to efile either.
    But with covid, irs is backlogged with paper returns and so I may never see my 2019 refund. And I want my 2020 refund. And I want my EIP’s.
    So I used irs “Free Fillable Forms”.
    You can check to see if it supports any obscure forms you need. There is no 1040-SR, but 1040 is the same thing with smaller print.
    It says above $72,000 can use it, but also less than $72,000, and everybody can use it too. The thing about “Free Fillable Forms” is, it’s like manual forms. There is no software learning curve or frustration. You have to press “Do The Math” button before it computes total fields. You pick, or forget which forms to use and you make your own mistakes. Print the return and check it because it’s up to you to make sure that every line is what you want it to be. Don’t efile it until you verify everything. I preferred to sleep, then check again the next day. I went back and made changes several times.
    It does require risking personal information, so ahead of time, make up a password that can’t be guessed and make a username that is hard to guess too; write them down and never use them anyplace else, ever!
    I found some password what not to do ideas online.

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