Taxes

A consolidated Form 1099 is produced for taxable accounts and details the income associated with that account for a particular year. Our consolidated Form 1099 is a single document with sections for 1099-DIV, 1099-INT, 1099-MISC, 1099-OID and 1099-B. The first four 1099 documents are found on page one of the consolidated Form 1099. These documents, along with the 1099-B pages (which list security sales and other proceeds) contain account data that is furnished to the IRS and must be included in your tax return.

• Accounts with no security sales and less than $10 in dividend and interest income
• Non-taxable accounts (including IRA accounts which may instead receive Form 1099-R)
• Corporate accounts (Corporate accounts will receive an informational summary document that looks very similar to a Form 1099, but does not contain information that is reported to the IRS)

Form 8949 is a listing of your long and short term, reportable and non-reportable capital gains. We may generate 4 versions of IRS form 8949, reporting sales of securities with short and long-term capital gains, further sub-divided into sales with cost basis reported to the IRS (Box A), and sales without cost basis or sales where cost basis is not reported to the IRS (Box B). Each of the 4 versions of this Form is necessary to complete Schedule D of your tax return, along with any corrected versions that may be generated. IRS Instructions for Schedule D and Form 8949 provide additional detail. This report will appear in the Tax Center under your Statements & Tax Records tab.

Form 1099-R is an IRS form that reports your distributions from annuities, profit-sharing plans, retirement plans, IRAs, insurance contracts and/or pensions. You will also receive a 1099-R for any rollovers, Roth conversions, and recharacterizations made to your Traditional, Roth, SEP, SIMPLE and Beneficiary IRAs. This report will appear on your Statements & Tax Records page under the Tax Center.

Form 5498 reports the fair market value (FMV) of your IRA as of December 31st along with any reportable contributions. Reportable contributions include rollovers, contributions, Roth conversions, and recharacterizations made to your Traditional, Roth, SEP, SIMPLE and Beneficiary IRAs. This report will appear in the Tax Center under your Statements & Tax Records tab.

When congress enacted the legislation requiring brokers to report cost basis, the consolidated 1099 due date was changed to Feb. 15th. In an effort to provide you with the most current data we, like many other firms, has received a further 30-day extension of the deadline from the IRS in order to limit the number of corrected 1099 forms it must release based on issuer changes to issuer provided information.

Generally 1099 Forms are posted to your Statements & Tax Records around the end of February.

Yes. You can import the reportable data from your Form 1099(s) directly into tax reporting packages including TurboTax and H&R Block by using their import from brokerage/financial institution function. The following types of tax information can be imported:

• 1099-DIV (Dividends and Distributions)
• 1099-INT (Interest Income)
• 1099-MISC (Miscellaneous Income)
• 1099-B (Proceeds from Broker and Barter Exchange Transactions)
• 1099-OID (Original Issue Discount)

Please note that the information found on your Form 1099-R cannot be imported at this time. You will need to enter this information manually.

How to import your information

1. Open your tax program and follow the instructions for importing data from brokerages and other financial institutions. There you will be presented with a menu of available financial firms.
2. Select Folio Investments from the menu. That will take you to a custom login screen.
3. Enter your full Account Number and the Document ID found at the top of your Form 1099. You should not enter the spaces found in the Document ID.
4. Your tax software will automatically enter your imported data into the appropriate sections of your tax return.
5. Repeat this process for each of your accounts that received a Form 1099.

Additional Notes

Be sure to carefully compare all imported data with the information on your Form 1099(s) to ensure that all the information is correct and all activity is accounted for. In certain circumstances, the imported data may not contain all the information required by your tax return. For securities transferred to us from another firm, you may need to add or adjust cost basis information.

Amendments to Form 1099 are issued frequently if you hold REITs, RICs, ETFs or mutual funds. Also, there may be multiple amendments to Form 1099 before the tax filing deadline. Therefore, we strongly suggest that you wait until at least the end of March before downloading your Form 1099 in order to allow any reclassifications or corrections to occur.

We will notify you by email if we post an updated Form 1099 online to your account online.

Note: We have no control over the reclassifications that cause Form 1099 amendments and you may have to amend your return if you decide to file early.

After the start of a new calendar year, many companies find it necessary to restate the characterization of payments that were made in the prior tax year.

For example: A company might reclassify a payment that was previously considered a dividend into a payment that is considered part dividend and part return of capital. These reclassifications are typically not published until February or potentially March of the new calendar year, which may result in an amended Form 1099.

Cost basis is the original total price you paid for a security, including commissions and any other fees. Adjusted cost basis is used to determine the capital gains or losses of an investment for tax purposes. This basis is adjusted by various corporate action events such as stock splits, exchanges, return of capital transactions and wash sales.

Cost basis information will be included on your Form 1099-B and your Year-End Summary which will be delivered to your online Statements & Tax Records page when available.

Covered securities refers to the securities acquired in taxable accounts on or after the effective dates shown below from the recent cost basis legislation. Securities acquired before the effective dates are called noncovered securities. Brokerages are responsible for reporting the total amount of cash paid by a customer, adjusted for commissions and fees from the purchase of the security for covered securities only.

Taxpayers are responsible for reporting cost basis for all covered and noncovered securities to the IRS on their tax returns.

We have always provided comprehensive tax lot reporting at the account level. In fact, our platform is one of the few in the industry that makes it easy to apply different tax lot strategies to a specific sale without affecting the tax lot settings for the rest of the account. Therefore, the 2008 cost basis legislation should have little to no effect on your account. We will continue to track cost basis for both covered and noncovered securities in taxable accounts, with the exception of wash sale adjustments which are only applied to covered securities.

Please note: We will not be reporting the cost basis of noncovered securities to the IRS.

The IRS created Wash Sale rules to prevent investors from deducting losses in certain situations.

Investors who sell securities at a capital loss cannot deduct the loss if they:

• Purchase the same security within 30 days after the sale, or
• Purchased more of the same security within 30 days prior to the sale.

Wash Sale rules apply to sales in taxable accounts only, although a purchase in a tax-deferred account can create a wash sale in a taxable account. For example, if you sell shares at a loss in your individual account and, within 30 days, purchase the same security in your IRA, or 401k account, part or all of the loss may be disallowed.

Examples:

Selling a security and buying it back within 30 days:

Selling a security that was purchased on more than one occasion, including once in the last 30 days:

Disallowed losses can be added to your purchase cost!
Wash sales aren’t all bad news. Losses that are disallowed can be added to the price you paid for the repurchased shares. Review this example.

Wash Sales can be confusing, and there are many conditions that may trigger a Wash Sale classification. Also, Wash Sale rules apply to trades made in brokerage accounts across multiple firms.

If you’re concerned that you may be creating wash sales, consult a tax advisor or financial consultant for specific advice on when to buy or sell.

In accordance with IRS regulations, taxable gains and losses are calculated and maintained only at the account level, not the folio level. As a result, this requirement actually allows the tax lots that are best suited to your chosen tax lot inventory relief method to be selected when placing a sell trade in your account. Although the shares will be sold from the folio in which the trade is placed, the tax lots will be selected from wherever they are most consistent with your tax lot inventory relief selection.

Short and long-term gain and loss tax lots can be viewed on the Account Holdings page. To determine which folio holds a position, select the number link in the Shares column.

The Account level holdings page shows capital gains and losses reflecting actual tax lots and the inventory relief method used for the account. Only Account level tax lots are used for tax purposes.

We redesigned our Form 1099-B to report sales that are used when preparing your taxes. The categories on our Form 1099-B match the categories found on the IRS Schedule D and Form 8949. Although the IRS requires that we report cost basis for covered securities only, we’ve included gain/loss information for noncovered securities in your account as well, as you will still have to report this information to the IRS in order to complete your taxes.

As required by these regulations, we only adjust tax lots as a result of wash sales that occur with an identical security (same CUSIP) in the same account (even though the wash sale rule applies across multiple accounts). Although you are not allowed to claim the loss that results from a wash sale for tax purposes, the disallowed amount is added to the cost of the repurchased security. The disallowed loss amount is also reported to the IRS.

Please note: The wash sale rule only applies to losses. Gains must be reported even if the same or similar shares are purchased within thirty (30) days of the sale.

Beginning for the 2012 tax year, there is a new IRS reporting requirement for Subchapter-S type corporate accounts. The 1099 for S-Corp accounts only contains the sales information (1099-B) as well as any withholding, if applicable. The sales data is only reported for covered securities that were sold during the tax year. This is the information that is required to be reported to the IRS.

Subchapter-C corporations will continue to receive ‘informational’ statements. These accounts have no data that is reported to the IRS but get a statement that looks like a normal 1099.

Please contact us if you believe your account is classified incorrectly.

Tax Exchange Format (.TXF) is a file extension for data files containing tax-related information. You can download Tax lots from the sale of securities for any type of non-retirement account held by us. The .TXF formatted file can then be imported into popular tax software from providers such as Quicken, TurboTax and others.

To download the .TXF tax lot file from your account, go to the Statements & Tax Records page and find it under the Tax Center tab then select the .TXF file you would like to download. Once you select download, save the file to your computer.

Please note: TurboTax Online and TurboTax Business do not support .TXF imports—you would enter your tax lots manually if you use these versions. To upload .TXF tax files, you must use the downloadable or desktop versions of TurboTax. This is a limitation imposed by TurboTax not by us. TurboTax does not support importing more than 3,000 tax lots into their software. If you have more than 3,000 tax lots in your downloaded file, you should use our printed list and attach it to your tax filing.

If you receive an amended Form 1099-B, you will need to download updated gains and losses report. We strongly suggest that you wait until at least the end of March before downloading your Form 1099 in order to allow reclassifications or corrections to occur.

You can view short-term and long-term gains and losses on your account’s Holdings page. To download both realized and unrealized gains and losses, go to the Statements and Tax Records page and find it under the Tax Center tab.

Depending on the country of origin, many foreign securities held as American Depository Receipts (ADRs) have foreign taxes withheld at the source. We receive the net dividend and pay it to customer accounts. Account holders can receive a credit for the foreign taxes that were withheld. To facilitate this, foreign dividend payments are shown on the Form 1099 with a breakout of any associated foreign tax that was withheld from the payment. The total foreign tax paid is listed on Page 1 of Form 1099, to be included on your tax filing.

Yes. Limited Partnerships have different reporting requirements. Limited Partnerships distribute K-1s directly to their limited partners (shareholders). Dividends from Limited Partnerships will not be reported on the 1099-DIV distributed by us. In fact, we exclude dividends from Limited Partnerships because they are reported on the K-1s distributed separately by the Partnership. Our Form 1099 contains a summary of the partnership distributions in a supplemental section.

Generally, the majority of K-1s are mailed in late February or early March (K-1s must be mailed to partners on record by March 15th following the close of the partnership’s tax year). Technically, if a partnership’s tax year is April 1–March 31, the Limited Partnership has 350 days to provide this information to partners. Most partnerships try to distribute K-1s in time for the April 15th Federal Income Tax Filing deadline.

Yes. Some trusts, especially royalty trusts and some Unit Investment Trusts, do not pay dividends. Instead, they pay royalty distributions. These distributions are reported in the 1099-MISC section of Form 1099.