Do you pay taxes on brokerage accounts? — Do you pay taxes on brokerage accounts?

Quick answer: Do you pay taxes on brokerage accounts? and how to start a brokerage account

Short answer: Yes, activity in a taxable brokerage account can create taxable income. Interest, most dividends, and realized capital gains may be taxable, while unrealized gains are not taxed until you sell or otherwise dispose of an asset. Publication 550 explains how investment income and losses are classified for federal tax purposes and provides examples you can use to identify what is reportable Publication 550.

Brokerage firms report taxable distributions and sales to you and the IRS using forms such as Form 1099-DIV for dividends and Form 1099-B for sales proceeds, which you will use to fill out Forms 8949 and Schedule D when preparing federal returns About Form 1099-B. See the Form 1099-B instructions for additional filing details Instructions for Form 1099-B (2026).

Investments held inside tax-advantaged retirement accounts, like Traditional and Roth IRAs, generally follow different rules and typically do not appear on brokerage 1099s; see IRS retirement guidance for the rules that apply to those accounts Retirement Plans and IRAs.

What a taxable brokerage account is and how to start a brokerage account

A taxable brokerage account is an investment account that does not have special tax-deferred or tax-free status. Typical assets in such accounts include stocks, bonds, exchange traded funds, and mutual funds, and the account owner is responsible for reporting investment income and capital gains on their tax return. The way these items are taxed is laid out in IRS guidance on investment income Publication 550. For related investing resources see the investing section on our site Investing.

Taxable accounts differ from retirement accounts in that contributions and withdrawals in IRAs and employer plans follow retirement-plan rules and may not generate the same year-by-year reporting on 1099 series forms. For an overview of those distinctions, see the IRS retirement plans information Retirement Plans and IRAs.

How to start a brokerage account, in brief: choose a brokerage platform, decide whether you want a taxable brokerage account or a retirement account, provide required identification information, agree to account terms, and fund the account. This overview is procedural context and not a recommendation of any provider.

How income from brokerage accounts is taxed: interest, dividends, and capital gains

Interest income from bonds, cash balances, and some money market instruments is generally treated as ordinary income and reported to taxpayers; guidance on classifying interest and other investment income is available in Publication 550 Publication 550.

Dividends can be qualified or nonqualified. Qualified dividends may be eligible for lower long-term capital gains rates if they meet holding period and other tests, while nonqualified dividends are taxed at ordinary income rates. The rules and reporting practices for dividends are described on the IRS page about Form 1099-DIV About Form 1099-DIV.

Capital gains are taxable when you realize them by selling or disposing of assets. The distinction between short-term gains, taxed at ordinary rates, and long-term gains, taxed at preferential rates, depends on the one-year holding period and is summarized in Topic No. 409 on capital gains and losses Topic No. 409.

Understanding these categories helps you identify which items on broker statements will affect your tax bill. Keep in mind that some transactions and special classifications can change whether a distribution is treated as interest, dividend, or return of capital, and the IRS guidance offers rules and examples to follow Publication 550.

How to report brokerage taxes: 1099s, Form 8949, and Schedule D

Brokers typically issue Form 1099-B for proceeds from sales of securities and Form 1099-DIV for dividends and certain distributions; these forms show the amounts reported to the IRS and often include cost basis information when available About Form 1099-B.

Form 8949 is used to report individual sales and other dispositions of capital assets and to record any basis adjustments or transaction codes that differ from your records. The IRS explains how to use Form 8949, including when to enter adjustments and which boxes to check About Form 8949; see the form instructions for line-by-line guidance 2025 Instructions for Form 8949.

After you report each sale on Form 8949 as needed, you summarize totals on Schedule D to calculate your net short-term and long-term capital gains or losses for the filing year. Topic No. 409 provides the framework for how those totals are classified and taxed Topic No. 409. If you need practical filing help, tax preparation guides such as H&R Block explain using Form 8949 in step-by-step fashion H&R Block guidance.

Taxable versus tax-advantaged brokerage accounts: what changes

Assets inside Traditional or Roth IRAs and many employer retirement plans usually do not appear on brokerage 1099s because those accounts are governed by retirement-specific tax rules rather than the immediate taxation rules that apply to taxable accounts Retirement Plans and IRAs.

Tax treatment for withdrawals from retirement accounts depends on the account type and whether distributions are qualified. For example, rules for Roth qualified distributions differ from rules for Traditional IRA distributions; Publication 550 and retirement guidance summarize these differences and how they affect reporting and taxation Publication 550.

When tax is triggered: realized versus unrealized gains and holding periods

Unrealized gains, sometimes called paper gains, are not taxable. Tax is generally triggered only when you sell or otherwise dispose of the asset and realize a gain or loss. The IRS topic on capital gains explains how dispositions create taxable events Topic No. 409.

The holding period matters. If you hold an asset for one year or less before selling, any gain is short-term and taxed at ordinary income rates. If you hold it for more than one year, the gain is long-term and may qualify for preferential rates. The one-year threshold and how it affects rate classification are discussed in IRS guidance Topic No. 409.

Cost basis and any required adjustments, such as for wash sales or corporate actions, can change your reportable gain or loss and may require entries on Form 8949. For guidance on these adjustments, see the form instructions and Publication 550 About Form 8949.

Common broker reporting errors and tax pitfalls

One frequent issue is a mismatch between the cost basis your records show and the basis reported by the broker on Form 1099-B. Brokers may omit basis for older lots or supplies, and when basis differs you use Form 8949 to record adjustments and codes that explain the difference About Form 1099-B.

Another common problem is missing or late 1099s. If a broker issues a corrected 1099 or delivers a late form, reconcile those changes before you file and consult the broker for clarification if numbers do not match your trade confirmations About Form 1099-B.

Special transaction codes from brokers can indicate sales that need adjustments, or transactions such as wash sales that limit loss recognition. Publication 550 explains when common transaction rules apply and how they affect basis and loss timing Publication 550.

To reduce surprises, check your broker year-end statement line by line, keep trade confirmations, and follow up promptly if you see an unfamiliar code or an unexpected basis entry; those records will help you support any adjustments on Form 8949 About Form 8949.

A simple step-by-step checklist for tax season

1) Gather documents: Collect Form 1099-B, Form 1099-DIV, any 1099-INT if applicable, year-end statements, and trade confirmations. These documents form the primary source for reporting brokerage income and sales on your tax return About Form 1099-B.

2) Verify basis: Compare the broker-reported basis to your own records for each sale. If the broker did not report basis or reported it incorrectly, be ready to enter adjustments on Form 8949 and keep supporting confirmations About Form 8949.

3) Report sales: Use Form 8949 for individual sales that require adjustments, and then summarize the totals on Schedule D to calculate net short-term and long-term gains or losses. Keep copies of all forms and supporting records with your tax documents Topic No. 409.

4) Know when to get help: Consult a tax professional if you have complex basis issues, large corrections from a broker, or state-specific questions that might change how you report investment income. Brokers and tax pros can help interpret unusual codes and corrections About Form 1099-B. For practical filing walkthroughs see H&R Block guidance H&R Block guidance.

Decision framework: when to realize gains or harvest losses

Key decision factors include your current marginal tax rate, whether a potential gain would be short-term or long-term based on holding periods, your time horizon, and whether selling aligns with your longer-term investment strategy. Topic No. 409 outlines how holding period affects the tax treatment of gains and should be part of your decision context Topic No. 409. For tax-efficient investing strategies see our guide Tax-efficient investing strategies.

Tax-loss harvesting can reduce taxable gains by selling positions at a loss to offset realized gains, but you must watch wash sale rules that can disallow losses if you buy substantially identical securities within the restricted timeframe. Publication 550 describes adjustments and rules that can affect loss recognition Publication 550.

Balance tax considerations with investment goals. Selling solely for a small tax benefit can undermine a long-term strategy; consider the tax impact as one factor among many when deciding whether to sell Publication 550.

Practical examples and scenarios

Short-term versus long-term sale scenario: If you sell a position you bought less than 12 months ago and realize a gain, that gain is generally short-term and taxed at ordinary rates. If the identical position is held beyond one year before sale, the gain is generally long-term and may qualify for preferential rates. The IRS explains the holding period and related rules in Topic No. 409 Topic No. 409.

Dividends during the year: Dividends reported on Form 1099-DIV may be classified as ordinary or qualified. The form and IRS guidance explain which dividends meet the tests for qualified status and how they should be reported on your return About Form 1099-DIV.

Correcting a basis mismatch: If you discover that the basis on your 1099-B is incorrect, use Form 8949 to enter the sale with an adjustment and keep trade confirmations and statements as backup. The Form 8949 instructions describe the codes and entries to use when adjusting basis About Form 8949.

State taxes, legislative changes, and verification steps to check

State tax rules for investment income vary. Some states tax capital gains as ordinary income while others offer specific rules or exclusions; check your state tax authority for the current treatment in your state.

Legislative changes can alter rates or thresholds after 2026. To verify recent changes, consult the IRS and your state tax authority and watch for corrected broker documents if a law change affects reporting.

Confirm broker statements early, and contact your broker promptly about any suspicious, missing, or corrected 1099s. Timely communication helps prevent filing errors and reduces the need for amended returns. For broker and platform comparisons when choosing an account, see our broker comparison M1 Finance vs Robinhood.

How investments inside retirement accounts are treated for taxes

Activity inside Traditional and Roth IRAs and many employer plans typically does not appear on Form 1099-B or Form 1099-DIV because those accounts follow retirement-plan reporting and distribution rules rather than current-year taxable events Retirement Plans and IRAs.

Distribution rules for retirement accounts determine taxability at withdrawal. For example, qualified Roth distributions may be tax-free under the rules that govern Roth accounts, while Traditional IRA distributions are generally subject to ordinary income tax rules; IRS retirement guidance covers these distinctions Publication 550.

Keep retirement account records separate from your taxable brokerage paperwork and follow plan-specific forms and instructions when reporting distributions on your tax return.

Key takeaways and next steps

Summary checklist: Activity in a taxable brokerage account can create taxable income through interest, dividends, and capital gains, while unrealized gains are not taxed until realized. Publication 550 and Topic No. 409 are primary sources for these rules Publication 550.

Next steps: collect all 1099s and year-end statements, verify broker-reported cost basis, report individual sales and adjustments on Form 8949 as needed, carry totals to Schedule D, and check state tax rules for differences that may affect your return. The forms and instructions for Form 8949 explain how to reconcile broker data About Form 8949.

If you encounter complex basis issues, large corrected 1099s, or state-specific questions, consider consulting a tax professional who can help interpret codes and ensure your return reflects accurate basis and adjustments.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.