A 1099-B is a tax form used to report sales of securities such as stocks, bonds, mutual funds, or other investments. If you are a U.S. expat who has sold investments or securities during the year, you will likely receive a 1099-B from your broker or financial institution. This form provides details of the transactions, such as the sale proceeds, dates, and the cost basis of the securities sold.
Here’s why a U.S. expat would need a 1099-B:
1. Reporting Capital Gains and Losses
- The 1099-B helps you report capital gains and capital losses from the sale of investments, which are subject to U.S. taxes.
- As a U.S. taxpayer (including expats), you are required to report your capital gains (profit) or capital losses (loss) on the sale of investments on your U.S. tax return (Form 1040).
- Short-term capital gains (for assets held for one year or less) are taxed at ordinary income tax rates.
- Long-term capital gains (for assets held longer than one year) are taxed at reduced rates (0%, 15%, or 20%, depending on your income level).
2. U.S. Taxation on Worldwide Income
- The U.S. taxes worldwide income, meaning that as an expat, if you sell investments anywhere in the world (whether in the U.S. or abroad), you must report these sales on your U.S. tax return.
- The 1099-B form provides the necessary details to calculate your capital gains or losses, regardless of whether the securities were sold in the U.S. or a foreign country.
3. Cost Basis and Proceeds
- The 1099-B includes key information:
- Proceeds from the sale: The total amount you received from selling the investment.
- Cost basis: The original price you paid for the investment (including any adjustments for things like reinvested dividends or corporate actions).
- The difference between the proceeds and the cost basis is your capital gain or loss. This needs to be reported on your tax return to determine how much tax you owe.
4. Foreign Financial Institutions and the 1099-B
- If you are holding investments in a foreign country, such as through a foreign brokerage account, and you sell securities, your 1099-B may still be issued by your U.S. brokerage firm if your investments are tied to that firm (for example, if you are using a U.S.-based broker with a foreign account).
- Alternatively, if you sell securities through a foreign financial institution, you might receive a foreign equivalent of a 1099-B that reports the necessary details for U.S. tax purposes.
5. Foreign Tax Credit or Deduction
- If you pay foreign taxes on capital gains (for example, a foreign country taxes your gains from the sale of securities), you may be eligible for a Foreign Tax Credit (FTC) or a foreign tax deduction to reduce your U.S. tax liability.
- While the 1099-B will report the sales details, you will need to keep track of any foreign taxes paid on those gains so you can claim the credit or deduction on your U.S. return, typically using Form 1116.
6. Dividends or Reinvested Gains
- In addition to reporting the sale of securities, the 1099-B form may also include details on dividends or reinvested capital gains. These need to be included in your U.S. tax return and could affect your overall tax liability.
7. Wash Sale Reporting
- If you have engaged in wash sales (selling a security at a loss and buying it back within 30 days), the 1099-B should report these transactions. The loss from a wash sale cannot be deducted from your taxes but is instead added to the cost basis of the newly purchased securities.
- As an expat, this is especially relevant if you’re making trades to offset gains with losses.
8. Accurate Reporting for IRS Compliance
- The 1099-B is used to ensure compliance with IRS reporting requirements. The IRS receives a copy of the 1099-B directly from your broker or financial institution.
- Accurate reporting of your capital gains and losses ensures you are not underreporting your income or paying less tax than required.
9. Avoiding Penalties and Interest
- If you do not report your capital gains (or losses) properly, the IRS may impose penalties and interest for underpayment of taxes. The 1099-B helps ensure that you report your transactions correctly, avoiding issues with the IRS.
10. Multiple 1099-B Forms
- If you have multiple accounts or brokerages, you may receive multiple 1099-B forms for different transactions or investment types. Be sure to aggregate the information from all forms when filing your U.S. tax return.
