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Cost basis and sales proceeds amounts on Form 1099

It is very common for the cost basis and sales proceeds amounts on your Form 1099 to be quite large. Because of Wealthfront’s Tax-Loss Harvesting and automatic rebalancing features, your account may see trading volume over the year that far exceeds your account’s value at any moment in time. This is especially common in accounts with US Direct Indexing (formerly known as Stock-level Tax-Loss Harvesting) due to the frequent tax-loss harvesting opportunities for individual stocks during periods of high market volatility.

As an example, imagine that you purchase a security worth $100 and that it declines to $90. Our Tax-Loss Harvesting service may sell it to harvest a $10 loss and buy another security to reinvest the $90 of sales proceeds.

Now assume that the new security declines from $90 to $85 and we sell it to harvest a $5 loss. We also reinvest the $85 of sales proceeds. The value of your account is $85, but the total sales proceeds reported will be $175 ($90 + $85), well above the value of your account.

As the prices of the individual securities in your Wealthfront account move up and down, our software will take advantage of these fluctuations by making tax-loss harvesting transactions. As you can imagine in periods of high volatility where markets are rising and falling, we may make many such tax-loss harvesting transactions — each will appear separately on your Form 1099. Thus, it is possible that Wealthfront made trades with proceeds totaling several times the value of your portfolio in order to take advantage of these tax-loss harvesting opportunities.

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