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  • Daniel Gray CPA US Tax Services Toronto Canada

Pay less tax on your 1099 income

Did you receive a 1099-B from a US investment and report the capital gain on both your 1040 and T1 Canadian tax return? Brokers report only the "out of pocket" cost on the face of a 1099-B, but in its statements provide adjusted basis as supplemental information. Save yourself from paying tax not owed by reading the brokers supplemental information providing adjusted basis versus reading just the 1099-B providing only original cost basis.

Cost basis is the original purchase price one paid for an investment plus fees/commissions. Adjusted cost basis includes adjustments to the price, such as corporate actions, ordinary income reported, dividend reinvestment, return of capital/principal and wash sale loss disallowed.

Gain or loss generally is defined as the amount after the adjusted cost basis is deducted from the proceeds from selling an investment.

Picking up only the 1099-B basis will result in reporting more gain than occurred (due to under-reporting basis by using original cost instead of adjusted basis) and doing so on a Canadian T1 translates into actually paying more tax versus doing so on a citizen abroad 1040 with sufficient T1 foreign tax credit to not pay any IRS tax even where the gain was erroneously over-reported.

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