Tax Changes FAQs



  • What are the new tax rules affecting the cost basis reporting on my TradeKing brokerage account?

    The IRS has implemented new rules that require brokerage firms to report cost basis for all purchases of Stocks, ADR's, REIT's and most ETF's made after January 1, 2011. This change is the result of the Emergency Economic Stabilization Act of 2008 which outlines IRS guidelines for the cost basis reporting by brokerage firms. In the coming years there will be additional securities that will require cost basis reporting and the IRS has set the following time frame:
    • 2011 Tax Year - Stocks, ADR's, REIT's and most ETF's
    • 2012 Tax Year - Mutual Funds and Dividend Reinvestment Plans
    • 2014 Tax Year - Options, Fixed Income and Other Securities
  • What is a covered security?

    Covered securities include stocks, ADR's, REIT's, most ETF's, and other equity securities that are acquired or sold short AFTER January 1, 2011. Mutual Funds are considered covered if acquired AFTER January 1, 2012. Options and certain debt instruments are considered covered if acquired after January 1, 2014.
  • How is this different from tax year 2010 and previous years?

    In previous years, brokerage firms were only responsible for reporting sale proceeds on a Form 1099 to the IRS. Starting in tax year 2011, brokerage firms are now required to report both the cost of covered securities along with the sale proceeds.
  • What happens to securities that I purchased prior to the IRS rule change for covered securities?

    If the opening transaction was for a Stock, ADR, ETF, REIT, or other equity security made prior to January 1, 2011 and was sold in the 2011 tax year or after the security will be considered uncovered, TradeKing will only report the sale proceeds and will not report the cost basis on a form 1099. Reporting cost basis for these trades will be the obligation of the investor when filing their taxes as it was handled prior to the rule change. If the opening transaction was for a Mutual Fund made prior to January 1, 2012 and was sold in the 2012 tax year or after the security will be considered uncovered, TradeKing will only report the sale proceeds and will not report the cost basis on a form 1099. Reporting cost basis for these trades will be the obligation of the investor when filing their taxes as it was handled prior to the rule change. If the opening transaction was for an Option or certain Debt Instrument made prior to January 1, 2014 and was sold in the 2014 tax year or after the security will be considered uncovered, TradeKing will only report the sale proceeds and will not report the cost basis on a form 1099. Reporting cost basis for these trades will be the obligation of the investor when filing their taxes as it was handled prior to the rule change.
  • What is the default cost basis treatment for my account?

    Accounts will default to FIFO (first-in, first-out) for cost basis matching. If you acquired multiple lots of the same security at different prices and/or on different dates AND you are only closing part of the position, then you may prefer to select a different tax lot method.
  • Is FIFO (first-in, first-out) the only option for the account default?

    TradeKing investors will have two options for the account default: FIFO (first-in, first-out) and LIFO (last-in, first-out). This selection initially defaults to FIFO; however you can submit a change of this method through the new Tax Lot Allocation Tool.
  • How do I select a different tax lot method for my transactions or my account?

    To change the tax lot for IRS reporting purposes on purchases made after January 1st, 2011, please go to My Accounts > Account Records > Tax Lot Allocation: Cost Basis and make your elections from there. Changes must be submitted within 2 business days following execution of the trade and is not applicable for purchases made prior to 2011. For any purchases made prior to 2011, it will be at your discretion to report the cost basis for taxation purposes when filing.

    To change the tax lot on the site level, please go to My Accounts > My Account Records > Maxit Tax Manager > Activity > Raw Trades > hover over the blue box to the right of the closing transaction and click Details from the drop menu that appears to make the adjustments in the screen that opens.

  • Will my option premiums be reported or applied to the cost basis of the stock transactions?

    No. Options will not be reported until tax year 2013. It is the responsibility of the investor to adjust the cost basis on stocks and other covered securities that may be impacted by premiums paid or received from option transactions.
  • How will these changes affect TradeKing's Gain & Loss Realized/Unrealized pages and TradeKing's Maxit Tax Manager tool?

    TradeKing will still offer Maxit Tax Manager and our Gain & Loss Realized/Unrealized pages; these tools are however independent of the new Tax Lot Allocation tool. If an investor decides to adjust a tax lot selection using the new Tax Lot Allocation tool and would like our Gain & Loss pages and Maxit Tax Manager to reflect the same selection, an update will need to be made by the investor to Maxit Tax Manager. Once a change is made in Maxit Tax Manager, TradeKing's Gain & Loss pages will typically update overnight. To learn more about using Maxit Tax Manager, please read our Maxit Tax Manager FAQ's.
  • Will TradeKing be required to report any other information regarding the covered securities in my account?

    Along with the reporting of purchase and sale information, TradeKing will also be required to adjust the cost basis for wash sales and other security reorganization events that occur to covered securities held in the account. The reorganization events that you typically encounter which will require an adjustment are stock splits, mergers, and capital distributions.
  • Does this change affect the way I report my total gain or loss information when filing my taxes?

    This change will not affect the requirement investors have to file a Schedule D Form when reporting tax information. Please consult a tax professional if you have any additional questions about your filing.
  • Will these rule changes affect my IRA account?

    This rule change will only affect "taxable" brokerage accounts which require the reporting of investment transactions. Since IRA accounts only require the reporting of contributions and distributions, they will not be impacted by this rule change.