Common investment tax mistakes
Last updated August 2026
Short answer
None of these require aggressive planning to avoid. They require reading the form and knowing which four lines are unreliable.
Accepting the reported cost basis
For covered securities the broker reports basis to the IRS and it is usually right.
For non-covered securities, including older holdings, transfers, inherited shares and gifts, it may be blank or wrong.
Inherited shares usually take a stepped-up basis to the date-of-death value, and a form showing the original purchase price overstates the gain, sometimes enormously.
Paying tax twice on RSUs and ESPP
The compensation element on vesting or purchase is already taxed through your W-2.
It is supposed to be included in the cost basis of the shares, and brokers frequently omit it.
Filing unchanged means paying capital gains tax on money that already went through payroll, which is among the most common and most expensive errors on this list.
Wash sales your broker cannot see
A wash sale occurs when you sell at a loss and buy the same or substantially identical security within 30 days either side.
Brokers apply the rule within their own accounts only, so a sale at one broker and a repurchase at another appears on neither form.
The version with real teeth is a repurchase inside an IRA, where the disallowed loss is lost permanently rather than added to basis.
Try it in Walnut
Walnut connects to your brokerage across accounts, which is the vantage point a single broker's tax form does not have.
Selling just before the one-year mark
Gains on holdings sold after more than a year qualify for long-term rates, which are materially lower than ordinary income rates.
Selling at eleven months converts the entire gain to short-term treatment.
Checking the acquisition date before selling costs nothing, and a few weeks of waiting can change the rate on the whole position.
Buying a fund before its distribution
Mutual funds distribute realised capital gains to shareholders, usually in December.
Buying days before the record date means receiving a taxable distribution on gains earned before you arrived.
Fund companies publish estimated distribution dates in advance, so this is entirely avoidable with one check.
Location and lot selection
Assets producing ordinary income, such as bonds and REITs, belong in tax-deferred accounts where possible.
The cost basis method decides which shares are sold, and the default first-in-first-out order is rarely the one you would choose.
Setting specific identification before a sale is what makes deliberate tax management possible at all.
A short pre-filing check
Every line has a cost basis, and any blank is one you can substantiate from your own records.
Inherited shares show a stepped-up basis rather than the original purchase price.
RSU and ESPP sales include the compensation element, and nothing you sold at a loss was repurchased within 30 days at another broker or inside an IRA.
Sources
Cost basis reporting, the wash sale rule, holding periods and fund distributions are covered in IRS Publication 550, with rates at Topic no. 409 and the sale form at About Form 1099-B. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
What is the most expensive investment tax mistake?
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Accepting a wrong cost basis on a 1099-B. It is frequently missing or understated on transferred, inherited and equity-compensation shares, and every error runs in the direction that overstates your gain.
How do RSU sales get taxed twice?
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The compensation element is already taxed through your W-2 and is supposed to be included in the cost basis. Brokers frequently omit it, so filing the form unchanged means paying tax again on money already taxed.
What is the cross-broker wash sale problem?
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Brokers only see their own accounts, so selling at a loss at one and repurchasing at another produces a wash sale that appears on neither form. Identifying it is the taxpayer's responsibility, and a repurchase inside an IRA destroys the loss permanently.
Why does selling a week early cost money?
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Holding for more than a year qualifies a gain for long-term rates, which are materially lower than ordinary income rates. Selling at eleven months and three weeks converts the whole gain to short-term treatment.
What is the December distribution trap?
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Mutual funds distribute realised capital gains near year end. Buying just before the record date means receiving a taxable distribution on gains earned before you owned the fund, which is tax with no economic benefit.
Is asset location a tax mistake?
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Getting it backwards is. Holding bonds and REITs in a taxable account while equities sit in a Roth wastes the shelter on the asset that needed it least, and it costs money every single year.
What about filing before the corrected form?
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Corrected 1099s are common in February and March, particularly with REITs and international funds. Filing the day the first form arrives is a reliable way to end up amending a return.
What should I check before filing?
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That every line has a cost basis you can substantiate, that inherited shares show a stepped-up basis rather than the original purchase price, that RSU and ESPP sales include the compensation element, and that nothing sold at a loss was repurchased within 30 days elsewhere.