Taxes on Short-Term Debt Securities: What Brokers Don’t Report

Are you aware that brokers may not report all the information you need to accurately report your taxes on short-term debt securities? This includes bonds, brokered CDs, and other fixed income securities.

What Information is Missing?

Brokers are not required to report the following information on 1099-B’s or 1099-INT’s for short-term debt securities:

Cost basis: The original purchase price of the security
Premium paid: Any additional amount paid above the face value of the security
Accrued interest paid: Any interest that has accumulated but not yet been paid at the time of purchase

Why is this Important?

If you don’t have this information, you could inadvertently:

Omit losses: When you sell or mature a security, you need to know your cost basis to calculate your gain or loss.
Not amortize premium: Premium is an amount you pay above the face value of a security. This amount is amortized (spread out) over the life of the security and reduces your taxable interest income.
Not deduct accrued interest: Accrued interest is interest that has accumulated but not yet been paid. You can deduct this amount from your taxable interest income.
Incorrectly calculate MAGI for ACA subsidies: MAGI (modified adjusted gross income) is used to determine eligibility for ACA healthcare subsidies. Tax-exempt interest is added back to your income when calculating MAGI. If you don’t include the missing information from your short-term debt securities, your MAGI could be incorrect and affect your subsidy eligibility.

What to Do?

To avoid these problems, it’s important to keep good track of your short-term debt securities, including:

Proceeds: The amount you receive when you sell or mature a security
Basis: The original purchase price of the security
Premium paid: Any additional amount paid above the face value of the security
Accrued interest paid: Any interest that has accumulated but not yet been paid at the time of purchase

If you need help with this, you can consult with a tax professional or use a tax software program that can track this information for you.

Conclusion

By being aware of the information that brokers don’t report on short-term debt securities, you can take steps to ensure that you’re reporting your taxes accurately. This will help you avoid potential problems with the IRS and maximize your refund or minimize your tax liability.

If you have any questions about short-term debt securities or other tax-related issues, don’t hesitate to contact us. Our licensed agents are here to help.