Editor’s note: This article introduces our periodic “Myth Busters” series, which will tackle some of the tough-to-remember and hard-to-decode tax rules and regulations that apply to brokerage accounts.
Tax filing fact or myth? "Your brokerage account 1099 must be in the mail by January 31."
Say what? That’s right, a consolidated 1099 should be postmarked by February 15 (or February 16 for tax-year 2015 due to the Presidents' Day holiday), according to the Internal Revenue Service (IRS). The regulation changed starting with the 2008 tax year.
Previously, firms were required to have these forms validated and postmarked by January 31. But that’s no longer the case. With the complexity involved in producing consolidated 1099s, this allows brokerage firms more time to validate and avoid corrections that may occur due to funds reallocating distributions or the purchase of a security in January during an open wash sale window. At TD Ameritrade, we use a phased approach so that we can get forms out quickly while minimizing the number of corrections. If your portfolio includes certain types of securities such as mutual funds and Real Estate Investment Trusts (REITs), which often reallocate or reclassify their distributions in January and February, your form may be issued in a later phase to avoid corrections.
This change affects 1099s that are combined with a 1099-B. That’s the form that summarizes the proceeds (gains and losses) of stock transactions. Standalone 1099s are still held to the January 31 deadline.
Why the Wait?
Is there a benefit to waiting another two weeks? Absolutely—a lot can happen in two weeks! For example:
- The additional time for form validation is beneficial for tax form providers (that’s your broker)
- Fewer 1099s have to be corrected because of funds reallocating distributions
- The extension allows for tracking the purchase of a security in January during an open wash sale window, which changes the transaction reported for the tax year just concluded
This shouldn’t imply that if you get one corrected form, you’re in the clear. More could come. Firms are required to produce corrected forms in a timely manner, so if the funds you invest in reallocate in September (and yes, this happens!), you will receive a corrected tax form.
Every effort is made to send tax forms out earlier for accounts that have little chance of correction. For instance, let’s say an investor did not have any trades in December that would be impacted by trading activity the following January, or the securities they hold don’t typically reallocate distributions.
Remember, We’re in This Together
Let’s say it’s February 4 and your broker indicates your tax form will be mailed out by the 15th. Rest assured, this is within the IRS 1099 deadline; the firm did not get an extension just to make you wait.
After all, brokerages don’t like issuing corrections any more than you like receiving them!