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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 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 Direct Indexing due to the frequent tax-loss harvesting opportunities for individual stocks during periods of high market volatility.

As an example, imagine that you have a Direct Indexing account with approximately $150,000 in securities, many of which are individual stocks. As the prices of these individual securities move up and down, our software algorithms will take advantage of these fluctuations by making tax-loss harvesting transactions. 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 totalling $200,000-300,000 or more (several times the value of your portfolio) in order to take advantage of these tax-loss harvesting opportunities, especially when markets are as volatile as they were in 2015.

 

Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.

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