If you’re like most people, you probably don’t think much about your income tax until it’s time to file. And if you’re using Fidelity online or Fidelity App to trade stocks, you may be wondering – does Fidelity report to the IRS?
The answer is…Yes. Keep reading for more information on how Fidelity reports taxes and what you need to do to stay compliant.
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Does Fidelity Report to the IRS?
The short answer is yes, Fidelity does report the investor information to the IRS. In fact, all brokerages are required by law to do so.
When you open an account with Fidelity (or any other brokerage), you’ll be asked to provide your Social Security number or taxpayer identification number.
This allows the brokerage to track your investment activity whether it may be gains or losses and report it to the IRS.
So even though you may not get a physical dividend check in the mail, you can rest assured that your investment income is being properly reported to the IRS.
Even if you’re not paying taxes on your investment earnings, the IRS still wants to know about it.
That’s why Fidelity is required to report certain investor information to the IRS.
Fidelity provides you all the necessary tax documents that you can use when filing your tax return.
What exactly does Fidelity have to report?
For starters, they’ll report your name, address, and Social Security number.
They’ll also report the type of investment account you have, as well as your account balance and any dividends or capital gains you earn.
If you receive a free stock or any other type of money that is also reported to the IRS.
They also report your Short term capital gains and long term capital gain so IRS can charge correct tax rate on the Fidelity Stocks Transaction and Sales.
IRS will receive a 1099 from accounting team at Fidelity that is used to double check taxes on Robinhood stocks.
Fortunately, you don’t have to worry about doing any extra paperwork come tax time. Fidelity will send you a 1099 form that includes all the information you need to file your taxes. So, while it’s not exactly a free lunch, at least you don’t have to do any extra work!
What Happens if you don’t Report Fidelity Account Activity on Your Tax Return?
Fidelity is a broker-dealer licensed to trade stocks and other securities, which means that it’s subject to regulations from the U.S. Securities and Exchange Commission (SEC).
One of these regulations is the requirement that Fidelity report all account activity to the IRS by sending all tax documents to the IRS and the Investors.
This includes information such as how much you’ve earned from selling stocks, as well as any dividends or interest you’ve received.
If you don’t report Fidelity account activity on your tax return and you owe taxes that are significant, the IRS may view it as tax evasion. Intially IRS will send a letter letting you know that you failed to report your Robinhood Account Activity on the tax return.
If you don’t respond to the IRS letter, you may get a Bill or an IRS Audit Letter.
The penalties for tax evasion can be severe, including jail time and heavy fines.
In addition, the IRS may also impose additional penalties for failure to report Fidelity account activity, such as late fees or interest charges.
As a result, it’s important to make sure that you accurately report all of your Fidelity account activity when filing your taxes.
How do I Avoid Capital Gains Taxes while using Fidelity?
There are several ways of avoiding capital gains taxes while using Fidelity:
- Capital Loss Harvesting (Tax Loss Harvesting)
- Investing in IRA, SEP IRA or 401k (Traditional Tax Deferred or Tax Free Roth)
- Investing in Tax Free Muni Bonds
You can learn more about Tax Free Retirement Accounts by reading our article on TFRA.
Pro Tip: Please be aware of the Wash Sale rules as you may end up paying taxes on the Wash Sale Amount.
Please provide your tax documents along with wash sale amounts to your accountant or CPA.
Does Fidelity Report Cryptocurrency to the IRS?
Recently, Fidelity added support for buying and selling cryptocurrencies.
Currently, Fidelity only supports trading for Bitcoin and Ethereum, but the company plans to add more coins in the future. Robinhood does not currently charge any commission fees for cryptocurrency trades.
The big question on everyone’s mind is whether or not Fidelity reports cryptocurrency trades to the IRS.
The answer is a bit complicated. Fidelity is required to report any income from crypto trading to the IRS.
However, only customers who have made over $20,000 in profits and have over 200 transactions are affected.
So, if you’re just dabbling in Fidelity crypto trading, you probably don’t have anything to worry about.
We recommend providing all the transaction history to your tax preparer or CPA regardless of amount you made in profit or loss.
Of course, it’s always best to speak to a tax professional if you have any questions about your specific situation especially if you have to pay taxes or pay estimated taxes on the capital gains.
Does Fidelity Report Options Trading to the IRS?
Yes, Fidelity not only report Stocks, Dividends, Crypto, they also report any Options Trading to the IRS. In simple terms, whether you sell a stock or receive a dividend, you need to report everything in your income tax.
You need to carefully review form 1099 from Fidelity and report any Option Trading on your Tax Return.
If you owe any taxes on Options trading, pay your taxes promptly to avoid paying any penalties or interest on your trading income.
Does Fidelity Report My Account Balance or Deposits to IRS?
Yes. Fidelity reports the Account balance that may include deposits to the IRS when they submit form 1099. These numbers are as of Dec 31st when the stock market closes.
When you receive any dividends that are deposited to your account as well as any stock sales are also reported to the IRS(as Capital Gains), even when you don’t withdraw those funds.
Final Thoughts
Fidelity is a popular stock trading platform that has gained a lot of users in recent years.
The platform is simple to use and does not charge commission fees, which has made it appealing to a lot of people who want to get into stock trading.
In our article we discussed, Does Fidelity Report to the IRS? and How to report your trading activity on on your tax return.
We learned that Fidelity account activity is something that you need to report on your tax return.
If you don’t report it, the IRS could come after you for back taxes, penalties, and interest.
So, if you’re using Fidelity to trade stocks, make sure that you include it on your tax return.
Otherwise, you could end up in hot water with the IRS.
