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Why are the cost basis and sales proceeds amounts on my Form 1099 so large?

 

This is very common. Because of Wealthfront’s Tax-Loss Harvesting (TLH) 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 Stock-level Tax-Loss Harvesting (SLTLH) 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. As part of TLH we’ll 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 algorithms 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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Wealthfront prepared this article for informational purposes and not as an offer, recommendation, or solicitation to buy or sell any security. Wealthfront and its affiliates may rely on information from various sources we believe to be reliable (including clients and other third parties), but cannot guarantee its accuracy or completeness. See our Full Disclosure for more important information.

Wealthfront and its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisor. Financial advisory and planning services are only provided to investors who become clients by way of a written agreement. All investing involves risk, including the possible loss of money you invest. Past performance does not guarantee future performance.