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:

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.

I was curious, though -what was the significance of this announcement? What do new tax forms mean for us as taxpayers? How can this be helpful for you and with our taxes and finances?

What is the Statistics of Income Division?

First off, what is the Statistics of Income Division of the IRS? Before the announcement I had never heard of them so I had to find out. They are the division takes the data received with tax filings through the years and releases data for the public.

The division includes economists, mathematical statisticians, and IT professional who complete numerous studies, one of which is the Personal Wealth Study. The division combs through the data every 3 years and shares what they’ve gathered.

That’s not the only study that they work on. I checked the IRS’ tax statistics page and found dozens of tax reports, including:

• IRS Compliance with Issuing Refunds
• Estate Taxes
• Gift Taxes

If you’re a fan of numbers, they probably have a study that would pique your interest.

SOI’s Latest Announcement

Once the study is complete, the publication will include three main parts:

• Individual Statistics Branch: This portion will mostly be what interests you the most. It’s focused on analyzing individual tax returns using 1040, 1040A, and 1040EZ.
• Corporation Statistics Branch: As the name suggests, this branch digs into tax forms relating to corporations, such as the 1120 (1120, 1120S, and 1120-F) series.
• Special Studies Branch: For those studies that fall outside of the two above mentioned areas, the SOI has a branch that pores over data such as gift taxes and international tax filers.

If you look at the PDF file included with news announcement, you’ll see in red the proposed data that they SOI will be using for the report. It’s expected the results will be released in 2012 or 2013.

Thoughts on the 2010 Forms and Schedules

Have you ever heard of the Statistics of Income Division before? Did you know about the valuable data and studies they head? What are your thoughts on the proposed forms and schedules for 2010?

You: Why?

You not only retain the obligation to report any “missing” income, but also must contact the institution failing to send you the proper form.

You: Why is that my job?

Whose job should it be?

You: The organization that didn’t send me the form in the first place.

True enough, but if they didn’t send you the form as they should have, they either a) don’t know they didn’t send you the form, or b) aren’t so competent, in which case I wouldn’t be waiting by the mailbox. Either way, the burden is on you.

You: Argh.

Keep in mind there are a variety of reasons why you might not have received a specific form. While even $1 of wages triggering a W-2 to be created, 1099s (often for self-employment work) have a $600 minimum. So, if you worked as a contractor and earned $350 from a particular client, odds are you won’t receive a 1099 from that organization.

You: Sweet—tax-free income!

Not quite.

You: Why not?

Because there’s a line on Schedule C specifically requiring you to enter income not reported on a 1099.

You: I knew that.

Banks paying less than $10 of interest in 2010 are not required to and typically will not send you a 1099-INT. With interest rates at their current pathetic depths, many people find accounts which formerly generated an annual 1099-INT no longer do so.  If that’s the case, you won’t have to chase down the form.

Sometimes, the form you need is one that can really work to your advantage.

You: How so?

I had a client recently fail to include one of her 1098s with her tax paperwork.

You: What’s the 1098 again?

Mortgage interest.

You: How could she fail to include that one?

She had a lot of other forms and didn’t notice one was missing. As it turned out, she didn’t know she already had the form.

You: How could she not know she had her form? Doesn’t it come in a separately mailed envelope with “IMPORTANT TAX INFORMATION ENCLOSED” printed on the outside?

Not always. In this woman’s case, the 2010 1098 was added to her January 2011 mortgage statement.  By looking for her form upon our suggestion, she saved her a chunk of change on her taxes.

You: So I really need all my forms?

You do.  If you don’t have your W-2, contact your employer. It could be as simple as a postal mis-delivery or an old address on your employment record. If the W-2 isn’t delivered shortly thereafter, contact the IRS.

If you’re missing a 1099 for self-employment work, verify if it’s more than $600. If so, contact the customer. If not, move on and file without it.  Either way, report all of your income and all of your deductions before April 18, 2011.

When you’re filing your taxes, you have to organize all financial paperwork  for your 1040 to be filed correctly. Many people are familiar with W-2s, but they may not be aware of another financial document needed- 1099s.  What are they for exactly? What kinds of 1099s can I expect to receive? I’ll answer these questions to help you file taxes easier.

1099s – What are They?

While W-2s record your salaries and wages, 1099 forms are for other sources of income such as  independent contractors income, unearned income like dividends and interest over the course of the year, and HSA distributions.

Some of our financial institutions have the option of downloading the forms which allows us to get the 1099s faster. We take advantage of it for convenience; if you have that option, I highly recommend going that route.

Types of 1099s

There are many different types of 1099 forms you can receive during tax time. These variants are based on the income source.  Here are just some of the more common ones:

• 1099-C: Cancellation of Debt
• 1099-CAP: Changes in Corporate Control and Capital Structure
• 1099-DIV: Dividends and Distributions
• 1099-G: Government Payments
• 1099-INT: Interest Income
• 1099-LTC: Long Term Care Benefits
• 1099-MISC: Miscellaneous Income
• 1099-OID: Original Issue Discount
• 1099-PATR: Taxable Distributions Received From Cooperatives
• 1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts
• 1099-S: Proceeds from Real Estate Transactions
• 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
• 1042-S: Foreign Person’s U.S. Source Income
• SSA-1099: Social Security Benefit Statement

The 1099s most taxpayers are familiar with are 1099-INT, 1099-DIV, and 1099-MISC. Since I’m self-employed, I keep track of what 1099s to expect from my contracts. As they come in I put them in an accordion folder until it’s time to file our taxes. It’s an easy system that helps me have everything ready.

If you want to learn more about 1099-MISC forms and how it affects you, the IRS has a wonderful resource on it.

Your Taxes and 1099s

Did you receive a 1099 this tax season? Which one did you receive? If you’re self-employed, how do you keep track and organize all your 1099s?

If you’re ready to file your taxes, here are some major tax forms you want to have ready. They’ll make a huge difference and in some cases, they can help you get a bigger tax refund.

Important Tax Forms

W-2s

This is probably the most anticipated form during the tax season. Your employer should already sent this to you at the beginning of the year. This document is a record of your total income for the year as well as your federal state and local taxes paid so far. If you’ve have automatic deductions for your 401(k) at work, this amount will lower your taxable income.

1099s

My husband and I received quite of bit of these documents this year. We have a few high interest savings accounts and earned a little bit of money for stashing it away. Banks are required to send you a 1099-INT so you can file that with your taxes since it is a form of income.

I also do some freelance and contract work which means I get 1099s for the projects I’ve worked on this past year. It’s important for those self employed to keep thorough records throughout the year to make sure they catch everything that need come tax time. Here’s a checklist of what tax forms you need in order to file.

1098s

For those paying mortgage interest, you should have received a statement or letter from your lender that shows the total interest paid in the last year.

If you paid student loan interest, there’s a form just for you, the 1098-E.

Thoughts on Tax Forms

If you haven’t received any of the forms and you should, please call your employer, lender, whoever to get those important documents sent to you as soon as possible.

If you’re preparing to file your taxes, tax preparation software like TurboTax can be a huge help in helping you fill out the correct forms for your tax situation. By going through an interview process, you’ll be guided to the right forms and the program will populate the information in the correct.

It makes taxes less of a headache. You’ll have more time for things that matter to you. I’d like to hear your take on taxes. How are you filing your taxes this year?