If you had no activity in your brokerage account last year, you probably don’t need to declare it. Here’s what you need to know.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
When do you need to declare brokerage account activity?
The IRS needs to know about taxable transactions in your brokerage account. It doesn’t need to know your balances or if you have a brokerage account.
You will generally need to report activity when you:
- Sell a security
- Receive a dividend
- Receive interest
- Receive a capital gains distribution
You generally don’t need to fill out a tax form for a brokerage account that has no activity in it.
What about IRAs?
You do not need to report transactions inside of your IRA. They are tax free.
You may need to report contributions to determine your deductions and basis. You may need to report withdrawals to determine any taxes on your withdrawals.
What about foreign brokerage accounts?
You may need to report a foreign brokerage account even if you don’t have any taxable transactions in the account during the year. This is due to FATCA reporting requirements. FATCA requires U.S. citizens to report accounts they hold abroad.
A foreign account is an account that you hold in another country.
- Not foreign: Holding an international stock fund in a U.S. brokerage account.
- Not foreign: Holding stock in a foreign company in a U.S. brokerage account.
- Foreign: Living in England and opening a local brokerage account while you’re there.
Why do people think they need to report brokerage accounts with no activity?
Other than just not understanding the tax rules, the biggest source of confusion is often tax software. If you use the same software each year, it will usually save your brokerage accounts to make things easier for next year.
If you had taxable transactions in your brokerage account last year and the software asks you about your brokerage account this year, you might think you need to fill out a form. Instead, you just need to tell the software you didn’t have activity in that account this year.
What if you didn’t get a 1099?
Not getting a 1099-B, 1099-DIV, or 1099-INT from your broker doesn’t mean you don’t owe taxes. You technically need to report every dollar of income even if it wasn’t enough for your broker to have to issue a 1099.
If you have more questions, please leave a comment.