Tuesday, February 19, 2008

I Got a 1099 for a Signup Bonus

Last year, I opened an interest-free checking account at Bank of America. To be honest, I only opened this "MyAccess Checking" account because they offered me a $75 bonus for signing up. The most ironic thing about this "checking" account was that although they include an ATM card and free online bill payments, they didn't actually include a checkbook with the account.

Getting to the point, I was recently surprised to receive a 1099-INT form from Bank of America. When I opened it up, I saw that the bank had listed my $75 "reward/gift" on line 1 as interest earned. That means that I need to pay tax on my signup bonus. Is this common? I've participated in similar offers in the past, but this is the first time that I've seen a 1099 list a bonus as being taxable. So, I dug up a copy of the original offer, and this is what the fine print said:

We (Bank of America) may report the value of any premium to the IRS.

So, I guess that I was forewarned. A side note is that Bank of America allowed me to fund the account using a credit card. There was no cash advance fee. If you use a miles or points card to open a new account, you would earn points as if your initial deposit was a purchase.

What are other people's experiences with bank bonuses?


Friday, February 8, 2008

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...


Saturday, February 2, 2008

Updates to the Blogroll

I wanted to take the opportunity to draw attention to a few blogs that I have added to my blogroll. The first blog is Finance Puzzle written by Elias Tsepouridis. This blog chronicles the author's financial thoughts, and he hopes to help his readers along the way. This blog's postings include many areas of personal finance including money saving tips, stock trading, and investing. A spreadsheet tallies a running total of the author's savings.

The second blog is Personal Financier which is written by Dorian Wales. Most articles focus on personal finance, economics, and business. But, the author also offers very insightful posts about making money blogging. Personally, I feel that the articles on this blog are very high quality, and wish that I could be as prolific as this writer is.

Lastly, I want to mention Realm of Prosperity written by Simon, a 20-year old college student. Many of his posts focus on a college student's struggles to make and save money. He has also written about stock investing, eBay, and making small amounts of money by taking internet surveys. His situation reminds me of myself 15 (maybe 20) years ago when I was in college. Currently, he seems to have a declining net worth, but hopefully this is only a temporary setback.

I am looking to add more blogs to my blogroll, so my invitation is still out to PF bloggers. If you have a bona fide personal finance blog, you can have your blog listed for FREE at PFStock (a $120/year value). Please Email me (my contact information is listed in the sidebar) and I will see if you qualify for a free link exchange.

Note that I do not currently link to commercial, real estate, or multi-level marketing blogs. Only personal finance blogs that are written by individual bloggers on a not-for-profit basis qualify for a free listing. Blogs and websites that do not qualify for a free listing may inquire about the low advertising rates offered for PFStock sponsors.