Taxes & Brokerage Bonus

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tomsense76
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Taxes & Brokerage Bonus

Post by tomsense76 »

Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
hachiko
Posts: 216
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Re: Taxes & Brokerage Bonus

Post by hachiko »

tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
02nz
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Re: Taxes & Brokerage Bonus

Post by 02nz »

I've seen it on a 1099-MISC or 1099-INT. Yes, you do owe it either way or even if no form is sent to you (log in on their site and check - there's usually a place for tax docs like 1099s). The exception is if the bonus went into a tax-advantaged account: for a tax-deferred account, it (plus growth) would only be taxed at withdrawal, and on a Roth IRA it would be totally tax-free!
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tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

hachiko wrote: Thu May 06, 2021 12:53 pm I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
Thanks! That makes sense
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Topic Author
tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

02nz wrote: Thu May 06, 2021 1:59 pm I've seen it on a 1099-MISC or 1099-INT. Yes, you do owe it either way or even if no form is sent to you (log in on their site and check - there's usually a place for tax docs like 1099s). The exception is if the bonus went into a tax-advantaged account: for a tax-deferred account, it (plus growth) would only be taxed at withdrawal, and on a Roth IRA it would be totally tax-free!
Thanks!

Yeah there's only one tax form, which is the Consolidated 1099. It includes 1099 DIV, 1099 MISC, 1099 INT, etc. That said none of them report it. Though Idk if it is below some threshold where they don't include it or if it is just an error on the brokerage's part.

It went into a taxable account.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
lazynovice
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Re: Taxes & Brokerage Bonus

Post by lazynovice »

hachiko wrote: Thu May 06, 2021 12:53 pm
tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

lazynovice wrote: Thu May 06, 2021 10:53 pm
hachiko wrote: Thu May 06, 2021 12:53 pm
tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
Good point. Was leaning towards calling it other income. Given the brokerage didn't include it on the form, think it would help to have some way to tell the IRS where this money is coming from (though it isn't really that much money).
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
hachiko
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Re: Taxes & Brokerage Bonus

Post by hachiko »

lazynovice wrote: Thu May 06, 2021 10:53 pm
hachiko wrote: Thu May 06, 2021 12:53 pm
tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
True. But whether it's favorable or not, unfortunately, does not change the answer.
lazynovice
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Re: Taxes & Brokerage Bonus

Post by lazynovice »

hachiko wrote: Fri May 07, 2021 12:07 pm
lazynovice wrote: Thu May 06, 2021 10:53 pm
hachiko wrote: Thu May 06, 2021 12:53 pm
tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
True. But whether it's favorable or not, unfortunately, does not change the answer.
If it comes as 1099-MISC from the brokerage, why would I change it to 1099-INT and pay more taxes?
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
hachiko
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Re: Taxes & Brokerage Bonus

Post by hachiko »

lazynovice wrote: Fri May 07, 2021 12:11 pm
hachiko wrote: Fri May 07, 2021 12:07 pm
lazynovice wrote: Thu May 06, 2021 10:53 pm
hachiko wrote: Thu May 06, 2021 12:53 pm
tomsense76 wrote: Thu May 06, 2021 12:00 pm Last year I signed up for a new brokerage and funded it enough to get a bonus also last year. Am filing my taxes this year, but am not seeing the bonus reported on my Consolidated 1099. Should it be there? Or is it perhaps under some threshold where they didn't need to report it? From searching around am guessing this should have been part of 1099-MISC. While I do have a short 1099-MISC form in the Consolidated 1099, all of the values are 0 :?

Anyways am assuming this is still taxable (is there any reason that wouldn't be true?). Given this, where does this get reported? Other income? Something else?

Thanks in advance for your advice here! :sharebeer
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
True. But whether it's favorable or not, unfortunately, does not change the answer.
If it comes as 1099-MISC from the brokerage, why would I change it to 1099-INT and pay more taxes?
The 1099 is an informational form which is prepared by a payor. It does not control the treatment of income to the recipient. You are not changing the 1099.

So, for example, if you sign up for two checking accounts, both offering bonuses for setting up an account and establishing direct deposits (identical requirements), and one issues you a 1099-INT and one issues you a 1099-MISC, it is undoubtedly incorrect to treat the first as interest and the second as other income. You could treat them both as interest, or you could treat them both as other income. Of course, I'd disagree with the latter, but at least you're consistent, and if you have some argument that it's other income, that's fine.
student
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Re: Taxes & Brokerage Bonus

Post by student »

tomsense76 wrote: Thu May 06, 2021 10:50 pm
02nz wrote: Thu May 06, 2021 1:59 pm I've seen it on a 1099-MISC or 1099-INT. Yes, you do owe it either way or even if no form is sent to you (log in on their site and check - there's usually a place for tax docs like 1099s). The exception is if the bonus went into a tax-advantaged account: for a tax-deferred account, it (plus growth) would only be taxed at withdrawal, and on a Roth IRA it would be totally tax-free!
Thanks!

Yeah there's only one tax form, which is the Consolidated 1099. It includes 1099 DIV, 1099 MISC, 1099 INT, etc. That said none of them report it. Though Idk if it is below some threshold where they don't include it or if it is just an error on the brokerage's part.

It went into a taxable account.
I remember one year, I got a $100 bonus for opening a checking account. I did not receive a 1099 so I called the bank and the customer service agent said the way they did it, it was not consider taxable. I did not believe them, so I reported it.
Topic Author
tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

student wrote: Fri May 07, 2021 1:30 pm
tomsense76 wrote: Thu May 06, 2021 10:50 pm
02nz wrote: Thu May 06, 2021 1:59 pm I've seen it on a 1099-MISC or 1099-INT. Yes, you do owe it either way or even if no form is sent to you (log in on their site and check - there's usually a place for tax docs like 1099s). The exception is if the bonus went into a tax-advantaged account: for a tax-deferred account, it (plus growth) would only be taxed at withdrawal, and on a Roth IRA it would be totally tax-free!
Thanks!

Yeah there's only one tax form, which is the Consolidated 1099. It includes 1099 DIV, 1099 MISC, 1099 INT, etc. That said none of them report it. Though Idk if it is below some threshold where they don't include it or if it is just an error on the brokerage's part.

It went into a taxable account.
I remember one year, I got a $100 bonus for opening a checking account. I did not receive a 1099 so I called the bank and the customer service agent said the way they did it, it was not consider taxable. I did not believe them, so I reported it.
Smart. That's my thinking as well. Including it as other income with an explanation of where it comes from. If the IRS decides it belongs somewhere else (or nowhere at all), they can of course revise and let me know. Though I wouldn't be surprised if they just leave it as-is.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Katietsu
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Re: Taxes & Brokerage Bonus

Post by Katietsu »

tomsense76 wrote: Fri May 07, 2021 1:44 pm
Smart. That's my thinking as well. Including it as other income with an explanation of where it comes from. If the IRS decides it belongs somewhere else (or nowhere at all), they can of course revise and let me know. Though I wouldn't be surprised if they just leave it as-is.
If the brokerage is not reporting it, there is 0 chance that the IRS will disagree with the placement as other income.

If the brokerage reports it on a 1099-INT, you could get a notice correcting your reported amount of interest. In which case, you would explain where it was reported and pay the difference from NIIT, if applicable.
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ipdiddly
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Re: Taxes & Brokerage Bonus

Post by ipdiddly »

I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
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tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

ipdiddly wrote: Fri May 07, 2021 1:58 pm I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
It's more like $250, but yeah smallish.

I don't follow how this wouldn't be income. With a credit card spending bonus, I understand that as it really is a rebate or discount. However a brokerage or bank bonus seems like it would qualify as income (money I wouldn't otherwise have as opposed to money I wouldn't have spent).

Anyways would rather not give the IRS a reason to audit. That's future time lost and potential headache. Paying the smallish amount of tax on this smallish amount of income seems like a pretty easy tradeoff.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
AnEngineer
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Re: Taxes & Brokerage Bonus

Post by AnEngineer »

tomsense76 wrote: Fri May 07, 2021 2:18 pm
ipdiddly wrote: Fri May 07, 2021 1:58 pm I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
It's more like $250, but yeah smallish.

I don't follow how this wouldn't be income. With a credit card spending bonus, I understand that as it really is a rebate or discount. However a brokerage or bank bonus seems like it would qualify as income (money I wouldn't otherwise have as opposed to money I wouldn't have spent).

Anyways would rather not give the IRS a reason to audit. That's future time lost and potential headache. Paying the smallish amount of tax on this smallish amount of income seems like a pretty easy tradeoff.
Even if they are providing a consolidated 1099, I don't think that obligates them to report a bank/brokerage bonus until total payments are at least $600, so I wouldn't rely on that.
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tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

AnEngineer wrote: Fri May 07, 2021 2:25 pm
tomsense76 wrote: Fri May 07, 2021 2:18 pm
ipdiddly wrote: Fri May 07, 2021 1:58 pm I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
It's more like $250, but yeah smallish.

I don't follow how this wouldn't be income. With a credit card spending bonus, I understand that as it really is a rebate or discount. However a brokerage or bank bonus seems like it would qualify as income (money I wouldn't otherwise have as opposed to money I wouldn't have spent).

Anyways would rather not give the IRS a reason to audit. That's future time lost and potential headache. Paying the smallish amount of tax on this smallish amount of income seems like a pretty easy tradeoff.
Even if they are providing a consolidated 1099, I don't think that obligates them to report a bank/brokerage bonus until total payments are at least $600, so I wouldn't rely on that.
Right I saw that $600 number pop up somewhere as a threshold for reporting, but was unable to track it down. Do you know where it comes from?

Anyways this is the same way I handle interest. Still reporting it even if a 1099-INT isn't provided, which happens a lot for lower yielding accounts.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
AnEngineer
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Re: Taxes & Brokerage Bonus

Post by AnEngineer »

tomsense76 wrote: Fri May 07, 2021 2:32 pm
AnEngineer wrote: Fri May 07, 2021 2:25 pm
tomsense76 wrote: Fri May 07, 2021 2:18 pm
ipdiddly wrote: Fri May 07, 2021 1:58 pm I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
It's more like $250, but yeah smallish.

I don't follow how this wouldn't be income. With a credit card spending bonus, I understand that as it really is a rebate or discount. However a brokerage or bank bonus seems like it would qualify as income (money I wouldn't otherwise have as opposed to money I wouldn't have spent).

Anyways would rather not give the IRS a reason to audit. That's future time lost and potential headache. Paying the smallish amount of tax on this smallish amount of income seems like a pretty easy tradeoff.
Even if they are providing a consolidated 1099, I don't think that obligates them to report a bank/brokerage bonus until total payments are at least $600, so I wouldn't rely on that.
Right I saw that $600 number pop up somewhere as a threshold for reporting, but was unable to track it down. Do you know where it comes from?

Anyways this is the same way I handle interest. Still reporting it even if a 1099-INT isn't provided, which happens a lot for lower yielding accounts.
I think it's a legal limit, but I haven't read it from the actual source, just many secondary sources similar to you.
hachiko
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Re: Taxes & Brokerage Bonus

Post by hachiko »

From a tax court decision:
Mr. Shankar did not object when, at the start of the trial in this case, respondent's counsel answered in the affirmative the Court's question as to whether, besides the IRA contribution, the other item in dispute, i.e., “Other income”, involved the omission from the Form 1040 of interest. Respondent's counsel added that the omitted income was a noncash award for opening a bank account. We proceed on the assumption that we are dealing here with a premium for making a deposit into, or maintaining a balance in, a bank account. In other words, something given in exchange for the use (deposit) of Mr. Shankar's money; i.e., something in the nature of interest. In general, the receipt of interest constitutes the receipt of an item of gross income.
Shankar v Commissioner, 143 T.C. 140 (2014).

Of course, this was before Anikeev, though I think the holding in Shankar would still apply to a bank account bonus.
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ipdiddly
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Re: Taxes & Brokerage Bonus

Post by ipdiddly »

tomsense76 wrote: Fri May 07, 2021 2:18 pm
ipdiddly wrote: Fri May 07, 2021 1:58 pm I assume the bonus was a relatively small amount - $50 or $100. If the brokerage firm or reporting institution is providing consolidated 1099's, I would assume those 1099's are correct. I personally would not overrule their accounting and report something as income if they don't report it as income. That's a personal choice, however. I am not saying that anyone should disregard IRS rules. However, I am saying the firm's accountants are probably more familiar with IRS rules than you are and should be given the benefit of the doubt. Besides, what's the worse that can happen? You may (however unlikely) get a letter down the road from the IRS saying you failed to report that $50 or $100. If so, send them a check for the shortfall.
It's more like $250, but yeah smallish.

I don't follow how this wouldn't be income. With a credit card spending bonus, I understand that as it really is a rebate or discount. However a brokerage or bank bonus seems like it would qualify as income (money I wouldn't otherwise have as opposed to money I wouldn't have spent).

Anyways would rather not give the IRS a reason to audit. That's future time lost and potential headache. Paying the smallish amount of tax on this smallish amount of income seems like a pretty easy tradeoff.
I have no idea why it wouldn't be considered income. However, this brokerage firm must handle hundreds/thousands of these and has determined it will not issue a 1099. Your guess is as good as anyone's. However, it makes no sense that a firm issuing a consolidated 1099 would not include this amount along with everything else. Clearly, they have an incentive/obligation to comply with IRS reporting rules. I think other commenters mentioning a $600 limit is a bit far fetched. That typically applies to amounts paid to baby sitters, etc. Banks/brokerages issue 1099's for anything over $10.

Also, there is zero chance of an audit. As I said, even if somehow the IRS learned of the bonus amount and considered it as unreported income, they would only send a computer generated letter and you can simply respond to that letter with a check for the amount they calculate.

That said: you should do what your conscience dictates. You are correct that the taxable amount is small and will have no impact on your life.
JackoC
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Re: Taxes & Brokerage Bonus

Post by JackoC »

hachiko wrote: Fri May 07, 2021 1:00 pm
lazynovice wrote: Fri May 07, 2021 12:11 pm
hachiko wrote: Fri May 07, 2021 12:07 pm
lazynovice wrote: Thu May 06, 2021 10:53 pm
hachiko wrote: Thu May 06, 2021 12:53 pm
I report brokerage and bank bonuses as interest income. Even if they come on the 1099-MISC I still report them as interest income because, in my opinion, they should be classified as interest.
For those subject to the Net Investment Tax of 3.8%, this would not be a favorable interpretation. If not subject to NII, then probably will not matter what you choose.
True. But whether it's favorable or not, unfortunately, does not change the answer.
If it comes as 1099-MISC from the brokerage, why would I change it to 1099-INT and pay more taxes?
The 1099 is an informational form which is prepared by a payor. It does not control the treatment of income to the recipient. You are not changing the 1099.

So, for example, if you sign up for two checking accounts, both offering bonuses for setting up an account and establishing direct deposits (identical requirements), and one issues you a 1099-INT and one issues you a 1099-MISC, it is undoubtedly incorrect to treat the first as interest and the second as other income. You could treat them both as interest, or you could treat them both as other income. Of course, I'd disagree with the latter, but at least you're consistent, and if you have some argument that it's other income, that's fine.
OK on your point in general theory: their error doesn't dictate the actually correct treatment. But, is there any actual case where a *bank account* bonus has been reported other than on 1099-INT? Mine have always been reported as such.

And there's a reasonable argument why a brokerage bonus is different. It could be viewed as a rebate on future commissions. In fact as that implies you might even argue that, like a credit card bonus (rebate), it's not taxable income (and perhaps some brokers' non-issuance reflects that view on their part).

But practically speaking, when I got a bonus on a taxable account* from Merrill in 2019, I took the inference from receipt of a 1099-MISC from them that it was 'other income' (IIRC their fine print had also said it was or 'could be'), and entered it that way with notation 'brokerage bonus from Merrill'. The IRS would be free to object that it should have been interest income, though as is 99+% likely in any such case, whatever the one true answer if there really is one, have not. If they ever did, or for future cases I was shown definitive evidence it was interest income, I would report it that way and pay the extra NIIT.

*OP seems to be talking about a taxable account, or maybe that was specifically clarified. AFAIK most internet references tell you it follows the nature of the account: bonus on a taxable account is taxable (though I don't know of a source dealing with interest v misc for people subject to NIIT), bonus on a tIRA account (I've also received) is taxable when withdrawn as part of the account balance, bonus on a Roth is not taxable. Although I'm not aware of any specific IRS guidance or directly on point tax court case from which this 'conventional wisdom' comes.
hachiko
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Re: Taxes & Brokerage Bonus

Post by hachiko »

I've gotten bank bonuses reported on 1099-MISC and 1099-INT.

As for the distinction between tax advantaged accounts and taxable accounts, treating it as interest makes the argument pretty easy. Interest received in a Roth is non-taxable. Treating it as other income (i.e. not interest) muddies the waters a bit. Worst case scenario (though I imagine the chance of the IRS actually asserting this officially to be almost zero) if you're trying to claim it is non-interest "other income" is that you engaged in an impermissible transaction which disqualifies the account.

Also, I don't buy the argument that it's a reduction of future commissions. You could say the same about a bank account - reduction in future fees. Either way, I don't want to go down that path, especially on a Brokerage account. You'd have to actually modify the 8949 to account for that. That just seems way too complicated. Also, how many people here pay commissions still?
SlowMovingInvestor
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Re: Taxes & Brokerage Bonus

Post by SlowMovingInvestor »

tomsense76 wrote: Fri May 07, 2021 2:32 pm
AnEngineer wrote: Fri May 07, 2021 2:25 pm
Even if they are providing a consolidated 1099, I don't think that obligates them to report a bank/brokerage bonus until total payments are at least $600, so I wouldn't rely on that.
Right I saw that $600 number pop up somewhere as a threshold for reporting, but was unable to track it down. Do you know where it comes from?

Anyways this is the same way I handle interest. Still reporting it even if a 1099-INT isn't provided, which happens a lot for lower yielding accounts.
https://www.irs.gov/instructions/i1099msc

File Form 1099-MISC, Miscellaneous Income,

..

At least $600 in:
...
Prizes and awards (box 3);
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tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

SlowMovingInvestor wrote: Fri May 07, 2021 4:00 pm
tomsense76 wrote: Fri May 07, 2021 2:32 pm
AnEngineer wrote: Fri May 07, 2021 2:25 pm
Even if they are providing a consolidated 1099, I don't think that obligates them to report a bank/brokerage bonus until total payments are at least $600, so I wouldn't rely on that.
Right I saw that $600 number pop up somewhere as a threshold for reporting, but was unable to track it down. Do you know where it comes from?

Anyways this is the same way I handle interest. Still reporting it even if a 1099-INT isn't provided, which happens a lot for lower yielding accounts.
https://www.irs.gov/instructions/i1099msc

File Form 1099-MISC, Miscellaneous Income,

..

At least $600 in:
...
Prizes and awards (box 3);
Thanks for digging that up :happy
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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tomsense76
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Re: Taxes & Brokerage Bonus

Post by tomsense76 »

If the IRS wants to categorize this as interest instead of other income, I won't object. Am subject to NIIT and back of the envelope this is ~$10 more in tax. Have already overpaid for taxes in my extension and they could draw it from there.

Though it would be nice if the IRS did make this expectation clearer by publishing their interpretation so we could reference that. The fact that different brokerages handle it differently and we are also unsure in this thread means that there is not sufficient guidance/information provided by them. However they may not be providing this guidance as they also know it is small potatoes (or are unclear themselves) and so are passing on this while dealing with bigger issues
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: Taxes & Brokerage Bonus

Post by ipdiddly »

I am just recalling that I received bonus airline miles for signing up for various credit card accounts as well as a brokerage account bonus. Perhaps I should have reported the fair value of those miles as income!!!!!!
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Re: Taxes & Brokerage Bonus

Post by lazynovice »

tomsense76 wrote: Fri May 07, 2021 4:28 pm If the IRS wants to categorize this as interest instead of other income, I won't object. Am subject to NIIT and back of the envelope this is ~$10 more in tax. Have already overpaid for taxes in my extension and they could draw it from there.

Though it would be nice if the IRS did make this expectation clearer by publishing their interpretation so we could reference that. The fact that different brokerages handle it differently and we are also unsure in this thread means that there is not sufficient guidance/information provided by them. However they may not be providing this guidance as they also know it is small potatoes (or are unclear themselves) and so are passing on this while dealing with bigger issues
If your brokerage is Fidelity, they reported mine on the 1099-Misc. I reported it as other income not received from “work”
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SlowMovingInvestor
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Re: Taxes & Brokerage Bonus

Post by SlowMovingInvestor »

ipdiddly wrote: Fri May 07, 2021 4:44 pm I am just recalling that I received bonus airline miles for signing up for various credit card accounts as well as a brokerage account bonus. Perhaps I should have reported the fair value of those miles as income!!!!!!
Credit card bonuses (whether in miles or $) are typically not taxable because they're considered rebates on spending.

OTOH, miles obtained through bank account bonuses are taxable -- Bask Bank started issuing 1099s on AA miles starting 2020.
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Re: Taxes & Brokerage Bonus

Post by JackoC »

hachiko wrote: Fri May 07, 2021 3:55 pm I've gotten bank bonuses reported on 1099-MISC and 1099-INT.

As for the distinction between tax advantaged accounts and taxable accounts, treating it as interest makes the argument pretty easy. Interest received in a Roth is non-taxable. Treating it as other income (i.e. not interest) muddies the waters a bit. Worst case scenario (though I imagine the chance of the IRS actually asserting this officially to be almost zero) if you're trying to claim it is non-interest "other income" is that you engaged in an impermissible transaction which disqualifies the account.

Also, I don't buy the argument that it's a reduction of future commissions. You could say the same about a bank account - reduction in future fees. Either way, I don't want to go down that path, especially on a Brokerage account. You'd have to actually modify the 8949 to account for that. That just seems way too complicated. Also, how many people here pay commissions still?
The first is interesting, but again I've never seen it myself.

The second as you practically say yourself is useless speculation. Or maybe that's too harsh and some feel it's worthwhile. I tend to tune out people's theories about 'worst case' imaginings of terrible tax things that seem implausible, especially if they make their own disclaimer that it basically is. :happy

On the third, everybody can have their opinions. Like I said, if I get a 1099 MISC for something I have no reason to think is interest, I report it as misc and give it little additional thought. Trying to invent a theory by which it's interest so I can pay $30 more tax seems silly, to me. But if somebody felt better about themselves, safer from scary worst cases, by doing that then maybe it's worth it to them.
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Re: Taxes & Brokerage Bonus

Post by hachiko »

I cited a tax court case stating it's interest. No one has cited anything in this thread stating it's properly treated as something other than interest. The only "authority" that people have cited is that "it's a large Brokerage firm so obviously they know what their doing." Speaking as someone who represents some of these types of companies (not financial services, but large MNCs) I would not consider everything they do authoritative. If anything, I'd argue it tends to go the other way.
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Re: Taxes & Brokerage Bonus

Post by AnEngineer »

hachiko wrote: Sat May 08, 2021 9:47 pm I cited a tax court case stating it's interest. No one has cited anything in this thread stating it's properly treated as something other than interest. The only "authority" that people have cited is that "it's a large Brokerage firm so obviously they know what their doing." Speaking as someone who represents some of these types of companies (not financial services, but large MNCs) I would not consider everything they do authoritative. If anything, I'd argue it tends to go the other way.
What you quoted is a bit hard to follow and not perfectly clear. For example, it references a bank (not brokerage) and has the word "generally".
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Re: Taxes & Brokerage Bonus

Post by hachiko »

OK, so what's your authority? Legal analysis doesn't work the same way as most people tend to argue in daily life. You don't just get to dismiss authority by pointing out a small difference in the facts. You have to be able to provide some other authority. Especially if the brokerage bonus is received based on the same qualifications as the bank bonus (deposit X assets and keep that amount in your account for 90 days).

Also, the taxpayer in that case received a 1099-MISC, not a 1099-INT.
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Re: Taxes & Brokerage Bonus

Post by AnEngineer »

hachiko wrote: Sun May 09, 2021 6:26 am OK, so what's your authority? Legal analysis doesn't work the same way as most people tend to argue in daily life. You don't just get to dismiss authority by pointing out a small difference in the facts. You have to be able to provide some other authority. Especially if the brokerage bonus is received based on the same qualifications as the bank bonus (deposit X assets and keep that amount in your account for 90 days).

Also, the taxpayer in that case received a 1099-MISC, not a 1099-INT.
Maybe it is, but it's not clear that what you quoted is an authority saying that it is interest income.
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Re: Taxes & Brokerage Bonus

Post by hachiko »

AnEngineer wrote: Sun May 09, 2021 7:31 am
hachiko wrote: Sun May 09, 2021 6:26 am OK, so what's your authority? Legal analysis doesn't work the same way as most people tend to argue in daily life. You don't just get to dismiss authority by pointing out a small difference in the facts. You have to be able to provide some other authority. Especially if the brokerage bonus is received based on the same qualifications as the bank bonus (deposit X assets and keep that amount in your account for 90 days).

Also, the taxpayer in that case received a 1099-MISC, not a 1099-INT.
Maybe it is, but it's not clear that what you quoted is an authority saying that it is interest income.
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Re: Taxes & Brokerage Bonus

Post by ipdiddly »

hachiko wrote: Sat May 08, 2021 9:47 pm I cited a tax court case stating it's interest. No one has cited anything in this thread stating it's properly treated as something other than interest. The only "authority" that people have cited is that "it's a large Brokerage firm so obviously they know what their doing." Speaking as someone who represents some of these types of companies (not financial services, but large MNCs) I would not consider everything they do authoritative. If anything, I'd argue it tends to go the other way.
If you are dealing with a large, reputable brokerage firm, like Fidelity, for example, they have a team of legal experts and accountants whose jobs require analyzing IRS rules and regs. They are very conservative and have a legal obligation to comply with those rules and regs. I strongly believe that if they award some type of bonus and believe it requires a 1099, they will issue the 1099. At that point, the obligation falls on the account holder to report it on their taxes. I am not suggesting that if somehow the brokerage firm makes an obvious mistake or your 1099 gets lost in the mail, that excuses you from reporting income. However, I am suggesting that the account holder, with no IRS expertise, may wish to rely on the determination made by the brokerage firm experts in this area.
OK, so what's your authority? Legal analysis doesn't work the same way as most people tend to argue in daily life. You don't just get to dismiss authority by pointing out a small difference in the facts. You have to be able to provide some other authority. Especially if the brokerage bonus is received based on the same qualifications as the bank bonus (deposit X assets and keep that amount in your account for 90 days).
You don't "dismiss" legal authority. You distinguish legal authority by pointing out fact differences.
Also, the taxpayer in that case received a 1099-MISC, not a 1099-INT.
Bingo! The taxpayer received a 1099, unlike the OP's situation.
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Re: Taxes & Brokerage Bonus

Post by Leesbro63 »

I've been playing the brokerage bonus game for years. Usually it's reported on a 1099-Misc and I report it the same on my tax return, as "other income". I would imagine the IRS computer could generate an inquiry letter if it saw 1099-misc income that was not reported by the taxpayer, even if reported by the taxpayer as interest. I do remember once or twice having a brokerage bonus reported as part of the 1099-INT number, and reported it was interest in those cases only. Interesting point about the 3.8% net investment income tax that it would be subject to for higher income taxpayers. If it was a big issue to me, I'd probably report it as interest so as to agree with the IRS computers, then add a line deducting that amount as interest as a "correction", then report it again as 1099-Misc income.

If I was the OP, I'd report it as if I received a 1099-Misc and make a note of what I did. Because if the brokerage ever figures it out, it will probably end up reporting that income on a 1099-Misc. And if they do report it later as 1099-INT, the taxpayer can just reply to an inquiry of what happened.
Last edited by Leesbro63 on Sun May 09, 2021 8:27 am, edited 1 time in total.
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Re: Taxes & Brokerage Bonus

Post by hachiko »

ipdiddly wrote: Sun May 09, 2021 8:06 am You don't "dismiss" legal authority. You distinguish legal authority by pointing out fact differences.
Are you a lawyer?

Me: "Your honor, as stated in Shankar, premiums paid by an institution for the deposit of assets into an account is treated as interest."
You: "Your honor, that was a bank account, this is a brokerage account."
Judge: "What's the difference? Why should I treat them differently? Help me distinguish these facts."
You: "one is a brokerage, the other is a bank."
[Crickets]
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Re: Taxes & Brokerage Bonus

Post by lazynovice »

hachiko wrote: Sun May 09, 2021 8:18 am
ipdiddly wrote: Sun May 09, 2021 8:06 am You don't "dismiss" legal authority. You distinguish legal authority by pointing out fact differences.
Are you a lawyer?

Me: "Your honor, as stated in Shankar, premiums paid by an institution for the deposit of assets into an account is treated as interest."
You: "Your honor, that was a bank account, this is a brokerage account."
Judge: "What's the difference? Why should I treat them differently? Help me distinguish these facts."
You: "one is a brokerage, the other is a bank."
[Crickets]
I love your passion!

If you read the brokerage bonus thread, you’ll find that all of the big brokerages report these on 1099-Misc. Brokerage bonuses are not new. The IRS has had plenty of time to tell Fidelity, Schwab, Bof A, etc. that they are doing it wrong. They haven’t. They have had plenty of time to send letters to taxpayers saying “you should have reclassified this as interest” They haven’t.

Broken Man showed you where these can be called Awards for purposes of 1099-Misc.

You are taking a conservative legal position that the IRS itself has never taken. They took Shankar to court for not reporting it at all. That case pre-dates the Net Investment Income tax. You are entitled to your opinion, but as someone who read post after post for years about how Back Door Roths violated the step doctrine, until the IRS made clear they did not, I will hold my opinion that until the IRS weighs in otherwise that matching the brokerages’ reporting is the way I will report these.
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Re: Taxes & Brokerage Bonus

Post by ipdiddly »

hachiko wrote: Sun May 09, 2021 8:18 am
ipdiddly wrote: Sun May 09, 2021 8:06 am You don't "dismiss" legal authority. You distinguish legal authority by pointing out fact differences.
Are you a lawyer?

Me: "Your honor, as stated in Shankar, premiums paid by an institution for the deposit of assets into an account is treated as interest."
You: "Your honor, that was a bank account, this is a brokerage account."
Judge: "What's the difference? Why should I treat them differently? Help me distinguish these facts."
You: "one is a brokerage, the other is a bank."
[Crickets]
Continuing your court room drama:
Me: "humina humina humina (my best Jackie Gleason)." "I throw myself on the mercy of the court (my best Ed Norton)."

I noticed you did not respond to the point that the OP did NOT receive a 1099, unlike Shankar. I previously indicated that, as a practical matter, given there was no 1099, the OP has zero chance of receiving a letter from the IRS. Please advise your opinion on the chance the OP will receive an IRS letter given there is no 1099, assuming his return is otherwise 100% accurate. (I am not asking if OP should report it, only whether he will receive a letter if he chooses not to report it.)

As an aside, while I didn't read the full text of Shankar, only a small blurb, it gave me pause about other reward programs. For example, several hotel affiliated cards sometimes give "free night" awards - either annual awards for maintaining the card or sign up awards after meeting certain spend requirements. So possibly there is a question about whether those "free nights" should be valued on a 1099. I have no opinion at the moment. And again, as a practical matter, if I don't receive a 1099, I'm not inclined to volunteer it as income.
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Re: Taxes & Brokerage Bonus

Post by JackoC »

hachiko wrote: Sat May 08, 2021 9:47 pm I cited a tax court case stating it's interest. No one has cited anything in this thread stating it's properly treated as something other than interest. The only "authority" that people have cited is that "it's a large Brokerage firm so obviously they know what their doing." Speaking as someone who represents some of these types of companies (not financial services, but large MNCs) I would not consider everything they do authoritative. If anything, I'd argue it tends to go the other way.
It's repeating other responses, but you provided a case showing a *bank account* bonus was interest, which nobody disputes. To which I think your claim of receiving 1099-MISC on bank account bonuses is mainly a tangent. It's a difference in fact. And I don't think your personal authority as a lawyer establishes the dubious (IMO) general axiom that counter arguments have to find an authority (other case, etc) saying a brokerage account bonus is different or else it's the same. As others said, the brokers themselves seem to think it's different, and the IRS has had plenty of time to tell them that's wrong. This is not a brand new issue nor are we talking minor firms. They could conceivably be wrong, but this IMO is far, far into the territory of gray areas not to worry about. If Merrill is wrong in issuing 1099-MISC's for bonuses because it 'misleads' taxpayers to report the bonus as other income, the obvious way for IRS to address that is warning Merrill to stop doing it (1,000's of times a year), not just tell the <1% of taxpayers they audit to hand over the extra few $'s. And the idea of me ending up in front of a judge explaining myself on something like this is entirely removed from practical reality IMO.
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Re: Taxes & Brokerage Bonus

Post by hachiko »

ipdiddly wrote: Sun May 09, 2021 11:14 am
hachiko wrote: Sun May 09, 2021 8:18 am
ipdiddly wrote: Sun May 09, 2021 8:06 am You don't "dismiss" legal authority. You distinguish legal authority by pointing out fact differences.
Are you a lawyer?

Me: "Your honor, as stated in Shankar, premiums paid by an institution for the deposit of assets into an account is treated as interest."
You: "Your honor, that was a bank account, this is a brokerage account."
Judge: "What's the difference? Why should I treat them differently? Help me distinguish these facts."
You: "one is a brokerage, the other is a bank."
[Crickets]
Continuing your court room drama:
Me: "humina humina humina (my best Jackie Gleason)." "I throw myself on the mercy of the court (my best Ed Norton)."

I noticed you did not respond to the point that the OP did NOT receive a 1099, unlike Shankar. I previously indicated that, as a practical matter, given there was no 1099, the OP has zero chance of receiving a letter from the IRS. Please advise your opinion on the chance the OP will receive an IRS letter given there is no 1099, assuming his return is otherwise 100% accurate. (I am not asking if OP should report it, only whether he will receive a letter if he chooses not to report it.)

As an aside, while I didn't read the full text of Shankar, only a small blurb, it gave me pause about other reward programs. For example, several hotel affiliated cards sometimes give "free night" awards - either annual awards for maintaining the card or sign up awards after meeting certain spend requirements. So possibly there is a question about whether those "free nights" should be valued on a 1099. I have no opinion at the moment. And again, as a practical matter, if I don't receive a 1099, I'm not inclined to volunteer it as income.
They wouldn't receive a matching error notice, that's true. But, as you know, you can't make decisions about proper treatment based on whether the IRS will find out about it.

For your last point, I'd say it's more similar to the recent TC holding in Anikeev. It's still within the timeline for appeal though.

For the record, I'm not conservative on positions on my own tax returns. I'd say I lean aggressive. I sometimes take positions that are contradictory to tax authority positions. I often take positions that are contradictory to instructions. But I make sure there's at least some authority to support my positions.
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