Reporting Stock Sales After Mergers & Splits: A Comprehensive Guide

Calculate your capital gain carefully.

Companies declare stock splits for a number of reasons, including to keep the share price low enough to attract ordinary investors. Companies also merge with one another to take advantage of new opportunities and new markets. Either or both of these events could impact your stock portfolio during the year, and if that happens, you need to know how to report any subsequent sales and stock proceeds to the Internal Revenue Service.

Step 1

Find the original cost basis of the stock involved in the merger or split. You must report your capital gain to the IRS if you sold your stock after the split. You are also required to report the stock sale and capital gain if the merger involved the acquiring company liquidating your shares and paying you cash for them. You do not have to report anything to the IRS if the stock remains in your account and has not been sold. Even so, it is important to track your cost basis, since you probably will sell that stock someday.

Step 2

Adjust your cost per share to account for the impact of the stock split. If you originally bought 200 shares of stock at $30 per share and it just declared a 2-for-1 split, that means your adjusted cost basis is now $15 per share. Following the split, you now have 400 shares instead of the original 200.

Step 3

Add any taxable dividends you earned throughout the years to the cost basis of the stock. You already paid taxes on these dividends, so they become part of your cost basis. You should also include in your cost basis the original brokerage commission you paid when you bought the stock.

Step 4

Wait for the 1099-B forms to arrive in the mail before filing your taxes if you sold stock during the previous year as the result of the merger or stock split. The 1099-B lists the proceeds of the sale, and it is then up to you to compute the proper capital gain or loss.

Step 5

Download Schedule D from the IRS website if you have a capital gain or loss to report. Enter the amount of the capital gain or loss for the stock involved in the merger or split, then transfer that amount to your 1040 form and add it to your other income.

Things You'll Need

• Purchase confirmation

• Sales confirmation

• Schedule D

• 1040 form