Does Turbotax use 1099-B "Proceeds from Broker" transactions if no cost basis is reported and instead "Supplemental" transactions are used

[cj5]

I’m going to start by trying to ask a general question, and then I’ll give details on why I’m am asking:

Q: If all transactions in the 1099-B “Proceeds from Broker” section do not have a reported cost basis and instead turbotax uses the transactions from the 1099-B "Supplemental Stock Plan Lot Detail" section, does the “Proceeds from Broker” section serve the filer any purpose and does TurboTax even store that information (I can’t find it).

After having done a first pass over my taxes, but before I filed, my broker issued a correction to my 1099-B. The errors fixed related to RSU transactions. There are about 27 of them, and the changes amounted to essentially removing 4 of the transactions and replacing with 4 others. This is in the “Proceeds from Broker and Barter Exchange Transactions” section of the 1099-B. This impacted the total shares sold and the proceeds total. There were no changes to the “Supplemental Stock Plan Lot Detail” used to adjust the cost basis of the shares (adjusted because 1099-B shows them with a $0 cost basis). What I noticed now is that the "Proceeds from Broker" section and the supplemental section are now agreeing  with each other w.r.t. total shares sold and total proceeds, which is good. Previously they did not. I’m surprised TurboTax didn’t flag this error.

I’m trying to figure out how to update my return with these corrections. I really don’t want to remove the downloaded 1099-B and re-download it, mostly because dealing with the supplemental transactions is probably where I’ve already spent half my time with this tax return. Not something I want to repeat. I noticed that currently the 8849 and schedule D seem to be using the data from the supplemental, not the “Proceeds from Broker” section that is reported directly to the IRS. Since there was no correction to the supplemental, and it appears to be correct, my return also appears to be correct, even without applying any of the 1099-B corrections. I’m not so sure the 1099-B “Proceeds from Broker “ section is actually serving my return any purpose. When I edit the 1099-B in EasyStep mode, it shows my the supplemental transactions, not the “Proceeds from Broker” transactions, so I’m not so sure there is actually anything for me to correct. The IRS will use their copy of the 1099-B to verify that my 8849 and schedule D totals look correct, but since the 1099-B is not actually part of my return, it seems I don’t even need to correct these errors (and in fact there may be nothing to correct). Am I understanding this correctly?

[DaveF1006 · Accepted solution]

It depends. It sounds like your return is correct, but here is the breakdown of why your return is likely already correct and why you may not need to "fix" the software entry.

1. Does the "Proceeds from Broker" section serve a purpose?

Yes, but primarily for reconciliation. The IRS View: The broker reports the gross proceeds to the IRS. The IRS then looks at your Form 8949 and Schedule D to see if your total proceeds match what the broker reported.

TurboTax's Role: When you use the "Supplemental" or "Employee Stock Plan" interview, TurboTax effectively uses those detailed lots to build your Form 8949. If your supplemental data already correctly listed the 23 "real" transactions (and ignored the 4 erroneous ones), your total proceeds and total cost basis on your tax return are already accurate.

2. Does TurboTax "store" the 1099-B Proceeds?

TurboTax does not store the "Proceeds from Broker" as a standalone number separate from the transactions. Instead, it sums up the individual transactions you entered.

If your manual/supplemental entries now add up to the corrected 1099-B total, you have achieved perfect reconciliation.

The reason TurboTax didn't "flag" the error previously is that for Non-Covered Securities (which RSUs usually are), the broker tells the IRS: "This person sold $X worth of stuff, but we don't know the cost." The IRS (and TurboTax) relies entirely on your supplemental entry to fill in the blanks.

3. Do you need to update the return?

Probably not, provided your Schedule D and Form 8949 totals match the Corrected 1099-B.  Look at your Form 8949, Column (d) (Proceeds). Sum up the rows related to this broker. If that sum matches the "Total Proceeds" on your Corrected 1099-B, you are done. The IRS will see the same total you reported, and their computer will move on.

4. When you should worry

The only reason to go back and edit is if the number of shares or specific dates on your Form 8949 are different from the corrected 1099-B. If the broker removed 4 transactions and added 4 others, and your current return still has the "old" 4 transactions, you should delete those specific lots and add the new ones manually to ensure your Form 8949 matches the broker's list of sales.

Summary Recommendation

Don't delete and re-download. Instead,Go to the Federal > Income > Stocks, Mutual Funds, Bonds section and review the list of individual sales. Cross-reference the Sales Date and Proceeds of the 27 transactions on your Corrected 1099-B against what is in TurboTax.

If you see the 4 "removed" transactions, delete them. If the 4 "new" ones aren't there, add them. As long as your Form 8949 matches the Corrected 1099-B line-by-line, you are 100% safe.

[cj5]

Thanks! This was very useful. Just a couple of clarifications:

"If your manual/supplemental entries now add up to the corrected 1099-B total, you have achieved perfect reconciliation. The reason TurboTax didn't "flag" the error previously is that for Non-Covered Securities (which RSUs usually are), the broker tells the IRS: "This person sold $X worth of stuff, but we don't know the cost." The IRS (and TurboTax) relies entirely on your supplemental entry to fill in the blanks."

But the total proceeds and total shares from the Supplemental section did not match to total proceeds and total shares from the Proceeds from Broker section until after the 1099-B was corrected. This is something Turbotax could have flagged. I'm guessing it lost track of the original Proceeds from Broker data once all the Supplemental data was entered.

"The only reason to go back and edit is if the number of shares or specific dates on your Form 8949 are different from the corrected 1099-B. If the broker removed 4 transactions and added 4 others, and your current return still has the "old" 4 transactions, you should delete those specific lots and add the new ones manually to ensure your Form 8949 matches the broker's list of sales."

The interesting thing here is that the Proceeds from Broker section has 27 transactions and I believe the Supplemental has 31. I haven't taken a close look as to why, but I'm guessing some of the original 27 transactions included shares from more than one deposit, so there was more than one cost basis to deal with, thus the transaction had to be split into 2 or more. The good news is the total shares and proceeds are now the same in both sections.

This mess is thanks to having multiple RSU grants vesting around the same time, each RSU grant having its shares deposited over multiple days, and each deposit resulting in the sale of some shares to cover taxes. There were also "wash sales" as a result of this, even though I only did one explicit sales transaction of all the combined deposits, and it was a month or so after things quieted down.

[DianeW777]

It depends. Once you make adjustments to the numbers, TurboTax will remember each action in the order completed.

So, if I understand you, the transactions now match the correct proceeds and shares agree with your actual numbers.  

Wash sales can cause some extra work and are handled completely separately from all other transactions. Below are details about theses sales in particular.

Wash sales cannot be combined into section totals.  They should be entered individually so that you can track your cost basis and know when you are allowed to use the information on a final sale.

Wash Sale Rule Defined:

• A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar.
• It also happens if the individual sells the security at a loss, and their spouse or a company they control buys a substantially similar security within 30 days.
• The wash-sale rule prevents taxpayers from deducting a capital loss on the sale against the capital gain of other stock.

Affect on Cost Basis:

• The loss that occurs on a wash sale is added to the cost basis of the shares purchased that created the wash sale.
• When all shares are sold and there is no repurchase, that increased cost basis will be used in full and used to determine gain or loss.

As long as you are tracking the wash sales and are not using them on the tax return when you are not allowed, then you can simply enter the same cost basis as the selling price. This will  reconcile your tax return with your Form 1099-B Proceeds which is what the IRS is comparing.

Wash Sale ends:

The wash sale disallowed is not added to the net gain/loss rather it is adjusted and suspended so that it does not affect the total gain or loss for any pending wash sales.  The rub is that the broker only knows when a wash sale occurs, not when a wash sale no longer exists. This can spill over between two tax years.  Likewise you can have a wash sale during a tax year, and then fully dispose of the stock in the same year which would eliminate the wash sale rule for the final sale of the same stock. 

It's up to you to know when you no longer have to consider the wash sale rule. 

Example: 

X bought 5 shares of ZZZ stock, at $5 per share, then sold it for $3 per share, however immediately before the original 3 shares were sold, X bought another 5 shares at $5.00 per share.  

     $25 for the first block of shares

       15 is the proceeds creating a $10 loss 

The $10 loss is now added to the cost of the new shares for an overall cost basis of $35.  

Once the second block of shares is sold (5 shares with cost basis of $30) without any repurchase with in the 60 day window (30 days before or 30 days after the sale), and if they are sold at a loss, then no wash sale exists on the sale, and a loss is allowed.

@cj5 

[cj5]

Yes, I'm aware of how wash sales rules work, and personally avoid them. I was just pointing out that the approach taken to distribute RSU grant shares and to collect taxes on them (by automatically selling some shares) resulted in wash sales before I even had a chance to explicitly sell any shares myself. Eventually I sold all the shares, so the wash sales "washed out" so to speak. There were no losses that I could not reap in 2025. Fortunately the broker tracks them and automatically added the disallowed wash sale losses to cost basis of later sales. I would not have wanted to figure out all the proper bookkeeping myself.

[DianeW777]

Thank you for clarifying and I appreciate the 'washed out' analogy.

@cj5