Your Brokerage Expectations at Tax Time

401K, IRA, Stocks

Not sure what to do with that Form 1099 you received?  We are happy to have guest writer, Jaci Devine, a free-lance writer for Scottrade, tell you what you need to know.

What to Expect from Your Brokerage at Tax Time

As the number of envelopes labeled “Important Tax Information” pile up in your mailbox, it’s easy to get overwhelmed. Rather than getting discouraged this year, take control of your taxes. When you know what to expect in those envelopes, you can make sure you get the information you need.

Scottrade offers customers several in-person and online educational opportunities to learn more about their tax forms, and the information presented is useful for all investors, no matter which brokerage you’re with.

Form 1099

If you have one or more brokerage accounts, you may be receiving a variety of forms. The most common one is your Form 1099. At Scottrade, the following types of brokerage accounts will typically receive the Form 1099:

  • Individual or Joint Brokerage Accounts
  • Retirement Accounts (IRAs and Roth IRAs)
  • Trusts and Estate Accounts
  • Investment Club Accounts
  • Partnership Accounts
  • Sole Proprietorship and LLC Partnership Accounts
  • Custodian Accounts

Reportable Transactions

Keep in mind that even if you have one of these accounts, you will only be issued a Form 1099 if you had reportable transactions in your account in 2011. For non-IRA accounts, reportable transactions include:

  • Closing a tax lot (selling a long position or buying to close a short position)
  • Interest and dividends
  • Taxable corporate actions (e.g., tenders, mergers, cash in lieu of fractional shares)
  • Royalty trust income
  • Brokered CD sales, and CD redemptions if the certificate matured more than one year after it was issued
  • Principal interest on unit trusts and corporate bonds
  • Original issue discounts (OID)
  • Bond redemptions

If you had one of these reportable transactions in your account, but the aggregate proceeds were less than $10, the proceeds are not reportable, and your brokerage typically will not issue you a Form 1099.

Composite 1099

The Form 1099 is actually a composite form made up of several subsets that each address a specific type of reportable information.

Here is a breakdown of the components of the Composite 1099:

Form Title What is Reported Amount Reported
1099-DIV Dividends & Distributions Dividends, return of capital or capital gain distributions $10 or more
1099-INT Interest Income Interest income $10 or more
1099-B Proceeds from Broker Transactions Sales/redemptions of securities and any cash distributions to the accountCash in lieu of fractional shares of stock during a corporate action All amounts
1099-OID Original Issue Discount OID on discounted debt instruments $10 or more
1099-MISC Misc. Income Royalties, other income, and substitute payments in lieu of dividends or interest $10 or more

Retirement & Education Savings Accounts

If you have an individual retirement account (IRA), a Roth IRA or a Coverdell Education Savings Account, you will be issued different variations of the Form 1099.

IRAs and Roth IRAs:

  • Form 1099-R – Reports distributions, including conversions and recharacterizations
  • Form 5498 – Reports contributions, fair market value (FMV)as of Dec. 31, 2011, and required minimum distributions

Coverdell ESAs:

  • Form 1099-Q – Reports distributions, transfers out and fair market value as of Dec. 31, 2011
  • Form 5498ESA – Reports contributions and transfers in

Mailing Dates

Even though you may want to get an early start on your taxes, keep in mind that brokerages mail your 1099s and other forms on different schedules, depending on IRS mailing dates and information availability. Check with your brokerage for their tax form mailing calendar.

Take Control

When those tax forms start to pile up, don’t just set them aside this year. Armed with the right information about what you should receive from your brokerage firm, you can take control of your taxes and get the information you need.

To learn more brokerage-specific information about your taxes, visit Scottrade’s Tax Guide.

Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Please consult your tax software or tax or legal advisor(s) for questions concerning your personal tax or financial situation.

Jaci Devine is a free-lance writer with experience in the financial services industry who specializes in investment education.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s