Backup WIthholding Deduction?

Question

My stock broker deducted a "Backup Withholding" charge when I sold some shares this year. The charge was much higher than what I should have paid in taxes (it basically assumed the entire amount of the shares as "income", when in fact my income was close to 0 because I sold the shares for the same price I bought them for).

How do I enter this information in my tax returns to get the money back from IRS? I was told that this might be a "deduction". However, I thought deductions were amounts that you didn't want to be taxed for (for example, if you donated money to charity). But this seems to be different --- this is money I want back from the IRS!

Any help will be greatly appreciated! Happy holidays guys!

Answer 1

I'm not sure where the "tax preparer" above gets her information. I hope she's not preparing taxes anymore!

Your From 1099 from the broker will show how much tax was withheld. Add that to any other withholdings you have such as from W-2s, etc. Attach a copy of the 1099 to your tax return to substantiate the withholding amount.

I'm curious as to why the broker withheld taxes though; that's not typical procedure. Did you fail or refuse to give him your SSN? Or were you or the broker notified by the IRS that you are subject to backup withholding?

Answer 2

If you are a US citizen/resident alien, it means you either didn't give them a valid SSN or the IRS told them to withhold the money because you haven't been reporting everything on your tax return. (28% is withheld)

When you file, this is withholding like any other withholding. Put it on the withholding line and include a copy of your 1099-B statement to show the amount. (Otherwise you won't get proper credit.)

If you are non-resident, attach a copy of the 1042-S to the tax return. (30% will be withheld.)

Answer 3

You will receive a 1099 of some sort that you will have to declare on your tax return, and included in your total income, thus it will be subject to federal taxes (not knowing your income scenario I cant tell you exactly what line item it will be reported on) the amount with held will be claimed as taxes paid on the back of your return. Tax due is calculated after your personal deduction and exemptions amounts are subtracted, using this amount the tax table will show how much tax is due, if you over-with held, you will be looking at a refund. Depending on your state, you may be subject to state tax as well, same scenario-tax calculated after your personal deduction and exemption amounts are subtracted.