Editor’s note: This article is part of our periodic Myth Busters feature, which tackles some tough-to-remember and hard-to-decode tax rules and regulations that apply to brokerage accounts.
Tax filing fact or myth? "Your brokerage account's 1099 form for 2017 must be in the mail by January 31, 2018."
Say what? That’s right, a consolidated 1099 form should be postmarked by February 15, according to the Internal Revenue Service (IRS). Actually, that's been the case for a while now—the 1099 mailing deadline 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 true. With the complexity involved in producing consolidated 1099s, the extended deadline gives brokerage firms more time to validate and avoid corrections required when funds reallocate their distributions or when securities are purchased in January during an open wash sale window.
At TD Ameritrade, we use a phased approach to 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 may reallocate or reclassify their distributions in January and February, your form may be issued in a later phase to attempt to avoid corrections.
Note: This change affects 1099s that are combined with a 1099-B, a form that summarizes the proceeds (gains and losses) of stock transactions. Standalone 1099s are still held to the 1099 deadline of January 31.
Why the Wait?
Can there be a benefit to waiting another two weeks? Absolutely—a lot can happen in two weeks! For example:
- The additional time for form validation is helpful for tax form providers (that’s your broker)
- Fewer 1099 forms 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
But don't assume that if you get one corrected form, you’re in the clear. More corrections could come. Firms are required to produce corrected forms in a timely manner, so if the funds in which you invest 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, perhaps an investor didn't 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. Still, there's no guarantee a corrected form won't be issued.
Take a Deep Breath
Suppose 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 didn't get an extension just to make you wait. After all, brokerages don’t like issuing corrections any more than you like receiving them.
This article is an update of the original "Tax-Filing Myth Buster: Brokerage Account 1099 Deadline" published on January 27, 2016.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.