Key terms you should know
Here are some of the most common terms and their definitions related to taxes & cost basis that you may encounter:
Average Cost: Average cost is the average purchase price of your investment, based on your buy orders and other transactions such as reinvested dividends. This cost is calculated by dividing the total purchase amount by the number of shares purchased or acquired.
Cost Basis: Cost basis is what you paid for your investment. Which is the original value of the stock minus any adjustment made for a corporate actions (stock splits, dividends, and return of capital distributions) or wash sale loss disallowance.
Capital Gain: Generally it’s the profit from the sale or exchange of a capital asset, such as stocks, which exceeds the purchase price. Capital gain may be short-term or long-term depending on your holding period.
Dividend: A distribution of earnings and profits of a corporation. Dividends may be in the form of cash, stock, or property.
Interest: The charge or fee paid for the privilege of borrowing money.
Stock: The legal capital of a corporation that is divided into shares.
1099-DIV: IRS form sent to investors so they can report dividends received, income tax withheld from dividends and foreign taxes paid on dividends for a particular year.
1099-INT: IRS tax form used to report interest income that may come from participation in our Cash Management program.
1099-MISC: The 1099 MISC would contain any goodwill credits and referral shares received during the tax year.
1099-B: The 1099-B reports proceeds from the sale of securities during the year, i.e. stock sales, mutual funds, ETFs, options expirations, taxable corporate actions.
Backup Withholding: A notice issued when the Tax ID or other identification numbers in your Robinhood Securities account doesn't match what the IRS has on file. These notices are sent from the IRS on a yearly basis. If the SSN is not corrected by the required deadline, Robinhood is required to restrict your account. Any proceeds from those position-closing orders, dividends and any other cash proceeds will be subject to 24% backup withholding and sent to the IRS.
NRA Withholding: A mandatory 30% withholding on dividends and other US sourced payments made to non-resident alien individuals.
EIN/TIN: EIN stands for Employer Identification Number (also known as federal tax identification number) used to identify a business entity. TIN stands for Taxpayer Identification Number, and SSNs are also considered TINs. A SSN is issued by the Social Security Administration (SSA) and an ITIN is issued by the Internal Revenue Service (IRS).
Option: A contract sold by one party to another that offers the buyer the right to buy or sell a security at an agreed upon price before a specific date.
REIT: Real Estate Investment Trust (REIT) is a company that is established for the accumulation of funds for investing in real estate.
Wash Sale: Where a security is sold for a loss, and then a purchase or acquisition is made of a substantially similar security during a 30-day period before/after the sale. The IRS prohibits taxpayers from claiming losses from wash sales.
Long-Term Securities: Securities that have a holding period of more than a year. This is an IRS definition for tax purposes.
Short-Term Securities: Securities that have a holding period of a year or less. This is an IRS definition for tax purposes.This is an IRS definition for tax purposes.
Non Dividend disclosure: Companies that issue dividends are responsible for providing the tax classification for these payments. Sometimes dividends are reclassified into non dividend payments called "return of capital" payments. These payments will adjust the cost basis of the shares held at the time of the payment are considered non taxable.
Robinhood does not provide tax advice. Please consult your tax advisor for questions regarding your specific tax situation.