IB 1099 and futures commissions

Well, project...Let's try and do something about that.

This is what I do to combat this. Post what is real for you always, not what sounds good.

I still have hope that ET can be a better place. There will always be someone that does not share in making this a helpful community.

Michael B.


Quote from project86:

I agree.

You know I am thinking that most of time this ET board is as useless as tits on a bull. With all the IB threads I know there are lots of IB future traders here you'd think a few would step forward with helpful replies but not on this board. What a disappointment.
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I am not an IB client. However, as I understand it, brokers only report the sales totals to the IRS and not the amount paid on the buy side. As I result, I do my taxes as follows:

1) Report the sales figure on my tax return exactly as shown on the brokerage 1099 statement.
2) Check the account beginning and ending balance for the year (i.e. 12/31/02 versus 12/31/03) to determine total increase in account value during the year.
3) Adjust for any cash additions/withdrawals during the year.
4) Adjust for any dividends paid, interest income or margin interest paid during the year.

This should give you your total 'profit' for the year. Deduct this from your total sales for the year to get your collective cost basis. This is what I do and I have not (yet) had any problems.

Note that all of my trading is short term, so there is no need to separate long-term versus short term gains. Also, I always end each year totally flat of positions at the close on 12/31. Finally, I don't report every trade on a single line, as I have 50,000+ trades per year. Instead, I just have a single line item on the Schedule D, entitled "Various" and the purchase and sales dates are also marked "various," followed by the total cumulative sales and purchases as discussed above.

All in all, this seems like the best and 'fairest' way to do it. You are, after all, paying taxes on your profits gained during the year.

Good luck,
-Eric
 
I started this thread to draw attention to the fact that specifically for futures, IB reports net gains/losses on 1099 without factoring in commissions, which you then have to subtract from gains or add to losses.

My point was that when the customer reports a net gain/loss to the IRS that DOESN'T match what's reported by IB, that needlessly raises a red flag and may trigger an audit.

What I'd like (and I'm sure the vast majority of IB futures traders would too), is that IB fix their software so that futures gains/losses are reported NET after commissions. Of course it's too late for 2003, but would be terrific if IB made this change for 2004 reporting.

This thread is NOT about getting advice from ET members on tax reporting. It's simply to request IB that they start reporting futures gains/losses on 1099 (net AFTER commissions) like the other brokers do.
 
Quote from mrpace:

Both this year and last, I reported only the number on line 1 (2002) and 1a (2003).

I did not bother doing anything with commissions, even though I would have loved to. But then again, I'm no tax expert, so I am sure I'm cheating myself out of some $$
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I did the same for 2001 ~ 2003, too. Since I only did swing trades, so it was no big deal. I started trading shorter time frame this year, so I'd like an answer from ib, too.
 
Quote from BruceLin:

I did the same for 2001 ~ 2003, too. Since I only did swing trades, so it was no big deal. I started trading shorter time frame this year, so I'd like an answer from ib, too.
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About how much did you spend on commissions? With a blended long term/short term tax rate of approx. 23%, you overpaid your taxes by 23% of your commission amount. For example, if you paid $1000 in commissions, you overpaid your taxes by $230. $1000 in futures commissions at IB for the year is less than 20 contracts per month — not very much.

If I file your amended return for you, will you split the refund with me?
 
Quote from Aaron:

About how much did you spend on commissions? With a blended long term/short term tax rate of approx. 23%, you overpaid your taxes by 23% of your commission amount. For example, if you paid $1000 in commissions, you overpaid your taxes by $230. $1000 in futures commissions at IB for the year is less than 20 contracts per month — not very much.

If I file your amended return for you, will you split the refund with me?
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If I calculate the commission with 23% tax rate, I've over paid $117 and some change on futures. I believe it would cost me more with my time spend if I got audited. I guess it's an advantage with a system that trades infrequent, hum? :)
This year, with my system automated, I've started trading intraday. So I definitely need to find out how to do this right.
 
Quote from svtrader:
My point was that when the customer reports a net gain/loss to the IRS that DOESN'T match what's reported by IB, that needlessly raises a red flag and may trigger an audit.

My point was that both the gross amount (in IB's case) and the commissions are on the form and are reported to the IRS. What I couldn't find was any guidance to the broker preparing the form as to whether the amounts on line 1/2 are supposed to include or exclude the amounts on line 4. Just because other brokers do it one way does not guarantee that it is the way the IRS treats it.

def: I'll try to read the links that you posted and see what I can find, but I'm pretty sure that's what I looked at previously. Specifically, the IB 1099 for futures, with lines numbered 1 through 4, doesn't seem to jive with the instructions for the 1099B, or any of the other 1099 types, which have "boxes" that are numbered and identified differently.

Can someone comment on whether their 1099s for futures from other firms also have the same lines 1 through 4 on them, or, if not, what they do have?
 
Looking at Pub 550 at http://www.irs.gov/publications/p550/ch04.html#d0e14494 ,

about 80% of the way down the page, there is this, with regard to 1099Bs:

"Report the gross proceeds shown in box 2 of Form 1099–B as the gross sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies. However, if the broker advises you, in box 2 of Form 1099–B, that gross proceeds (gross sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies.

If the net sales price is entered in column (d), do not include the commissions and option premiums in column (e)."

If I read this correctly, it says that the broker has the option of reporting proceeds with or without sales commissions, and you should either add the sales commissions to your basis or not, as appropriate. This implies that they have no way to specifically know whether a particular 1099 does or does not include sales commissions.

However, the fact that it refers to schedule D columns (d) and (e) here implies that it's talking about equities only. It's not clear whether the 1099B is the correct form for futures.
 
I'd really like to see the person who is responsible for IRS Compliance Reporting at IB explain what prevents IB from providing a more customer friendly 1099 for futures (that accounts for commissions in the net gain/loss on line 1/2).

def, is that possible?
 
Quote from svtrader:

I'd really like to see the person who is responsible for IRS Compliance Reporting at IB explain what prevents IB from providing a more customer friendly 1099 for futures (that accounts for commissions in the net gain/loss on line 1/2).

def, is that possible?
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I'll try to find out the reasoning. Pardon my ignorance on this issue but if all the information is on the sheet, what is the fuss? I imagine some funds and/or people prefer to have the split out.

I should add that I have already passed this link along and hope to have some info back shortly.
 
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