What happens if I start reporting stock trades after not doing so for years?

So I've got this awkward situation... I haven't reported any of my stock trades for the past 3 years on my tax returns. Now I'm thinking about actually reporting them properly this upcoming tax season. My big worry is - what's the chance I'll get audited if I suddenly start reporting these trades when I haven't before? My portfolio is pretty small, currently less than $6,000 total. A friend told me that since my portfolio isn't very big, the IRS probably won't flag me for an audit. Is that true? I'm kind of freaking out about this and wondering if I should just come clean or if there's something else I should be doing.

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18 comments

Sophia Bennett

•8M

The good news is that voluntary compliance before the IRS contacts you is always your best option. When you start reporting your stock trades correctly, you're taking a positive step that the IRS generally views favorably. Your friend is partially right - the IRS does have limited resources and tends to focus audits on higher-value discrepancies. However, brokerages file 1099-B forms with the IRS reporting your transactions, so the IRS already likely has record of these trades even if you didn't report them. Consider filing amended returns (Form 1040-X) for the previous three years to report these transactions properly. If you owed taxes on gains, you'll need to pay those plus interest and possibly penalties. This is much better than waiting for the IRS to discover the discrepancy, which could happen during routine matching of your brokerage's 1099-B forms against your past returns. The probability of audit specifically because you start reporting correctly is actually lower than if you continue not reporting, as the IRS computer systems are designed to flag discrepancies between reported income and information returns.

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Sophia Bennett

•8M

The IRS likely has the information from your broker's 1099-B filings, but their systems may not have flagged the discrepancy yet. The IRS typically has three years to audit returns, so your previous filings are still within that window. Regarding penalties, you may qualify for what's called "reasonable cause" relief if you can demonstrate you didn't understand your reporting obligations. First-time penalty abatement is also available for taxpayers with clean compliance history. When filing amended returns, include a statement explaining your situation and requesting penalty abatement. You'll still owe interest on any unpaid tax, but penalties might be reduced or eliminated.

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Zoey Bianchi

•8M

I went through something really similar last year with unreported dividend income and found an amazing solution with https://taxr.ai that saved me so much stress. I had about $7,000 in a brokerage account I inherited and hadn't reported the trades for a couple years. When I finally decided to get right with the IRS, I was terrified about potential penalties and didn't know how to handle filing amended returns properly. The taxr.ai system analyzed my situation, helped me understand exactly which forms I needed to file, and gave me clear guidance on how to minimize penalties. It was especially helpful in organizing all my historical transaction data for the amended returns.

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Zoey Bianchi

•8M

No audit at all! The system helped me file proper amended returns, and I received confirmation from the IRS that everything was processed correctly. I did have to pay some back taxes plus interest, but because I voluntarily disclosed everything before being contacted by the IRS, the penalties were minimal. The AI handles Form 8949 reporting really well actually. It can import your transaction history from most major exchanges and brokerages, then automatically calculate your cost basis and capital gains/losses for each transaction. For crypto specifically, it handles all the complex basis calculations and even identifies wash sales if applicable. It saved me probably 20+ hours of spreadsheet work.

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Christopher Morgan

•8M

Just wanted to update that I tried taxr.ai after seeing this thread! For anyone in a similar situation - it was SO much better than I expected. I was able to upload my Robinhood statements from the past 3 years and it automatically extracted all my trades, calculated my actual tax obligation, and helped me prepare amended returns. Turns out I only owed about $340 in back taxes plus some interest since most of my trades were actually small losses. The best part was the penalty abatement letter it generated explaining my situation to the IRS - very professional and cited the exact IRS rules about voluntary disclosure. Got confirmation last week that my amended returns were accepted without penalties! Definitely worth checking out if you're in this situation.

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Grace Johnson

•8M

If you're dealing with unreported stocks AND trying to contact the IRS about it, you might want to check out https://claimyr.com - I tried calling the IRS for weeks about a similar situation (unreported RSUs from my employer for 2 years) and could never get through. Used their service and got connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was actually really helpful and explained exactly what I needed to do to correct my returns without triggering a full audit. They walked me through the voluntary disclosure process and helped me understand which forms I needed. I was shocked at how non-intimidating it was to actually talk to someone.

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Grace Johnson

•8M

It definitely works! They use some kind of automated system that navigates the IRS phone tree and holds your place in line. When an agent finally answers, you get a call back and are connected immediately. It's not just redialing - I tried that approach myself for days without success. They have some kind of call routing technology that maintains multiple connection attempts simultaneously. I was skeptical too, but after spending hours getting nowhere on my own, the 20-minute wait time was incredible. All they did was connect me - I spoke directly with the IRS agent myself, so there's nothing sketchy about it.

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Nora Brooks

•8M

I need to eat my words. After posting my skeptical comment, I was still desperate to talk to someone at the IRS about my unreported dividend income situation, so I tried Claimyr anyway. I got connected to an IRS agent in about 15 minutes! The agent walked me through exactly what I needed to do to file amended returns for my unreported investment income from the last two years. The IRS person actually said they appreciate when taxpayers voluntarily correct their returns before being contacted for audit. She gave me specific instructions for filling out Form 8949 for my previously unreported trades and explained how to request first-time penalty abatement. Never thought I'd say this, but it was actually a positive experience talking with the IRS.

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