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This "best friend's sister's child" should not be doing anyone's taxes based on the information you gave. Selling stock requires a 1040 return with Schedule D. Your friend received a 1099-B which was also sent to the IRS so they will catch this error. However, they will agree with the cost basis of 0, so your friend must file an amended return to correct this. (Wait until the IRS processes the initial return or you will just confuse them.)

You are also correct in that the $1066.51 is the NET PROCEEDS not the taxable amount. It includes the commission of $20 plus a few cents per share (I don't know the exact fee) but does not include the cost basis.

My brother also works for Walmart. Their ESOP plan allows them to buy stock via a payroll deduction. WMT then kicks in another 15% match (up to $1500 per year). To make it even more complex, WMT reinvested the dividends each quarter. Your friend paid tax on these dividends in the past (1099-DIV), so for capital gains purposes they must be treated as a seperate purchase (otherwise you pay tax twice on the dividend amount). So the cost basis of those partial shares must be accounted for as well.

Due to the fact that your friend bought stock little by little, this becomes quite a tedious exercise. You cannot use an average cost basis for stock. You must calculate the basis of each partial share transaction which was involved in the sell. If the sell resulted in a loss, the wash sale rule will apply because the payroll deductions and reinvested dividends likely caused buys within the 60 day window of the sell. All of this information is available on the Equiserve website if he does not have his own records.

It is not too late to get an accountant involved. Your friend can amend the past several year returns also if something similar took place. The accountant will probably charge by the hour to straighten out someone else's mess, but I think professional help is worth it in this situation.

NOTE: This person "helping" people do their taxes gets off the hook because the IRS goes after the person who signed the form. Unfortunately, this is not the kind of "help" most people need!
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