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Brokerage provided P&L statements

Most brokers now offer some sort of Gain and Loss or Profit and Loss report. The idea is that a client can get a picture of their total short and long term gain or loss for any given tax year. The problem is that these reports are not always accurate.

To prove our point, most brokers provide a bold disclaimer that these reports are for informational purposes only and should not be used for tax purposes.

Here is a sampling of such disclaimers:
  • "This information may not include all adjustments necessary to be made prior to its use in the preparation of your tax return."
  • "Such information may not reflect all adjustments which may be necessary for tax reporting purposes"
  • "Be sure to verify the information that you import against your own records in order to insure accurate and complete reporting of all required tax information on your federal income tax return."
  • "This statement is being provided for informational use only. Please review it carefully for errors. It may or may not represent the amount of gain or loss reportable by you for Federal and state income tax purposes."

Inaccurate Cost Basis

The main problem stems from inaccurate cost basis of positions held open at year end. For example, if you held shares open from the previous year, in many cases these reports use the year end cost basis of those shares rather than the actual cost and actual dates purchased.

In addition, if your stock or option went through a stock split or other corporate action, then the resulting profit or loss reported will also be incorrect. Nothing on the broker provided report will alert you to these errors, and it is up to you to verify each and every line item on the report to make sure they are accurate.

Cost Basis Legislation

This has resulted in some recent legislation (the Emergency Economic Stabilization Act of 2008) which requires brokers to provide accurate cost basis reporting to both the IRS and to taxpayers. However, this does not totally fix the problem as this law does not go into effect until January 1, 2011 for stocks acquired on or after January 1, 2011.

Other securities such as mutual funds and dividend re-investments (drips) are not included in the law until January 1, 2012, while options are not included until January 1, 2013. But all of this does not help if you purchased any securities in an earlier tax year. The legislation simply does not fix all of the potential problems.

So what does a trader do in the meantime? What every trader needs is professional grade trader tax software that can accurately calculate your gains and losses no matter what you had open at year end and allow you to make any necessary adjustments quickly and easily. TradeLog™ is such software.

For a real life example of the deficiencies of broker provided profit and loss reports, please see:

Misconceptions - Broker provided Gain/Loss reports.

Learn More... Brokerage 1099


Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.