Thomas Barwick
If you’re a Vanguard investor who is hoping to file your taxes early, you may be disappointed.
Clients at The Vanguard Group who switched from the firm’s mutual fund platform to its brokerage account in 2019 will receive two sets of tax forms for that year, the company confirmed.
These Form 1099s will arrive in January for mutual fund accounts, and in February for brokerage accounts, according to Vanguard’s website.
The forms detail sales transactions, as well as dividends and capital gains stemming from activity in your investment portfolio that you need to complete your return.
“Please wait until you get all of your forms before filing your taxes,” Vanguard told one affected investor in an email reviewed by CNBC.
Swapping from the mutual fund platform to the brokerage account simplifies account management for clients, said Vanguard spokeswoman Jess Emery. The Valley Forge, Pennsylvania-based firm is one of the nation’s largest asset managers, with $5.6 trillion under management.
In future years, these investors will likely receive one 1099 consolidated form, detailing their holdings, according to the firm.
While the start of tax season is right around the corner — Jan. 27 — brokerage firms generally have a reputation for slowing the filing process by sending out delayed or amended 1099s to their investors.
“It will involve more work if you’re getting those 1099s,” said Michael Goodman, CPA and president of Wealthstream Advisors in New York. “Some people wait until later to file their tax returns because they’re expecting an amended form.”
Delayed and inaccurate 1099s
The Internal Revenue Services offices in Washington, D.C.
Adam Jeffery | CNBC
While brokerage firms generally have until Feb. 15 to deliver clients’ 1099s, investors still wind up getting their paperwork late.
That’s because mutual fund providers spend January reviewing the information they get from the underlying companies they invest in, including calculating taxable dividends and capital gains from those companies, said Ed Zollars, CPA at Thomas & Zollars in Phoenix.
The custodians and brokerage firms where you hold your accounts must process this data before providing you with a 1099.
If it’s a small adjustment that’s in your favor — a refund that’s the equivalent of a Starbucks coffee — it might not be worth the hassle factor.
Michael Goodman
CPA and president of Wealthstream Advisors
“If you’re a custodian or a brokerage firm, you’re accumulating all of this information from hundreds of sources,” said Goodman.
Firms can make mistakes on these forms — for instance, erroneously reporting the amount of ordinary dividends to a client — and send corrected paperwork to the investor well into the spring.
“In the old days, these clients would come with their 1099s at the end of January, and then everything would get pushed back two more weeks for these amended forms for minor dollar amounts,” said Zollars.
If you filed early and later found out that your brokerage firm is sending a corrected form, you may have to send the IRS an amended tax return.
Getting ahead
PeopleImages | Getty Images
Even if there’s a chance your brokerage firm may send you a delayed or amended form later in the tax season, don’t wait until April 15 to file.
Here are a few suggestions to get yourself prepared.
Gather your data now: You probably have a crush of documents that are coming in via email and snail mail, including a W-2 from your employer or other 1099s for freelance work.
“I would still lean toward preparing the return, but don’t push the ‘send’ button yet,” said Goodman.
Visit your tax professional: Get in line as early as you can. “Basically all the clients have brokerage accounts, so by definition, the tax season doesn’t start until Feb. 15,” said Zollars. “We’ve lost a fifth of our preparation time – it’s a big difference in the amount of time we have to do returns.”
Hash out whether you need to file an amended return: If you file early and get a revised 1099 in the mail afterward, talk with your tax professional to see if it makes sense to submit an amended return.
If the updated 1099 leaves you with a liability, however, work with your accountant to hash out an amended return and pay the amount owed.
“If it’s a small adjustment that’s in your favor — a refund that’s the equivalent of a Starbucks coffee — it might not be worth the hassle factor,” said Goodman.
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