I would rather comment on how it is almost springtime instead of tax time, but the reality is that tax season is upon us and we need to prepare. Being an investor comes with additional tax reporting that is often not as straightforward or timely as a W-2. We are talking about Form-1099, which deals with non-employment related income.
There are different types of Form-1099 depending on the type of non-employment income. You might get a 1099 for distributions from your IRA or ROTH; for interest on your savings account; or for freelance consulting work, as examples. When you have a taxable (after-tax) brokerage account, you get a 1099 for the dividends, interest, and any tax-exempt income on the account. A consolidated form also includes the realized gain/loss report. When you have a brokerage account with multiple account holdings, such as mutual funds, Exchange Traded Funds (ETFs), individual stocks, and bonds, the custodian, (Charles Schwab & Co for our clients), usually gathers the information from the underlying investments to consolidate the reporting for you.
A consolidated Form-1099 is a blessing that is only cursed by the underlying holdings. The custodian’s job of consolidating this information is fraught with corrections from the underlying investments. As a result, it is almost certain that your Form-1099 on your taxable brokerage account will be amended. For our clients custodied with Charles Schwab & Co, this has already happened. The initial Form-1099 for brokerage accounts was due and issued around February 15th. There is already an amended Form-1099 issued due to some major updates by some of the underlying fund holdings.
The custodian, relying on the underlying holdings, has up until the tax filing deadline of April 15th to send corrections (April 18th for 2023). We have seen some accounts amended all the way into early April in prior years. Typically, these corrections are minor. It is up to you and your tax advisor to determine the materiality of the amendment compared to filing your taxes prior to the deadline.
If you hold more complex investments, such as private equity, private debt, or private real estate, it is likely you are waiting on a K-1 form that isn’t due until September 15th. For investors with complex portfolios, the likelihood of filing an extension is high based on consulting with your tax advisor. There is no harm in filing an extension, but you do need to estimate and pay any tax that might be due by the original tax deadline in April.
While these forms and corrections can seem like an added annoyance to an already tedious process of preparing your tax return, recognize this is why you have a team of professionals to help and support you.
Cathie Straub, CFP®, CDFA®, CPA (expired)
Adviser Disclosure: Alaska Wealth Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Alaska Wealth Advisors’ investment advisory services can be found in its Form ADV Part 2, which is available upon request.
Commentary: The opinions expressed are those of Alaska Wealth Advisors Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed.
Note: This material should not be construed as tax advice. You should always consult with your tax professional with regard to specific tax questions and obligations.