The 1099 Waiting Game

By now, you should be receiving the last of your 1099 forms from banks and brokerages for tax year 2007. Together with these 1099s and my W-2 form, I have all the data that I need to prepare my tax returns. But, I am now waiting for my CORRECTED 1099 forms arrive. For several years, I have had to re-figure my taxes due to updated numbers on my tax forms.

For investors, the usual suspects are mutual funds (especially foreign funds), Exchange Traded Funds (ETFs), tax-free bonds, and dividend paying stocks. Starting last year, the Internal Revenue Service (IRS) added two new boxes on the 1099-INT form that report tax exempt interest, and the amount of tax exempt interest that is subject to the Alternative Minimum Tax (AMT). For mutual funds, there are four categories of distributions: long-term capital gains, short-term capital gains, dividends and non-qualified dividends. Mutual funds sometimes classify their distributions incorrectly and need to re-classify them properly. ETFs will sometimes declare a distribution in December, but not pay you until January. Unfortunately, you need to pay taxes on these funds in your prior year's taxes. Sometimes, foreign mutual funds need to calculate the foreign taxes paid by the fund. This calculation often takes a couple of months for the fund to figure out. Foreign taxes paid can be taken as a credit on your U.S. taxes. And, I've had instances where my brokerage put my tax-free interest in the wrong box, listing it as taxable interest. For dividend paying stocks, I've sometimes seen the dividends characterized incorrectly as non-qualified dividends when they were actually qualified dividends (which have preferential tax treatment).

The corrected 1099 forms are sometimes further corrected. In one case, I didn't get my last 1099 corrected until April! Some brokers have already informed their clients that corrected 1099 forms will be mailed until March. I can sometimes predict when one of my 1099 forms is incorrect, and expect to receive a correction. Issues with 1099 forms usually resolve themselves, but it often takes the brokerages and banks a while. For people who are expecting a tax refund, deciding when to file can be a hard call. You want to get your refund back quickly, but you wouldn't want to have to file an amended tax return later...

DC