Ten Reasons Why You Should Not Rely on Year-End Statements for Tax Reporting Purposes

Sue BerginSue Bergin

Many investors are confused by discrepancies between year-end figures and those that appear on 1099 tax reporting documents from fund companies. Typically, these discoveries come to light around midnight when it is most difficult to get someone on the phone that can explain the discrepancies.

If you come upon a discrepancy, resist the temptation to jump to the conclusion that there is a problem. Instead, know that discrepancies sometimes happen, which is why experts advise against using year-end reports for tax reporting purposes.

10 Reasons Year-End Statements Should Not Be Used for Tax Reporting

  1. Fund companies explicitly caution against using the figures provided in year-end reports for tax reporting purposes. There is a reason that it has become industry standard to include such disclaimers. The industry is trying to prevent tax preparers from a commonly made mistake.
  2. The gross proceeds amount on the 1099 will rarely match the proceeds amounts show on a year-end statement’s realized gain/loss statement.
  3. Reclassifications often occur after year-end.
  4. RICs or spillover payments aren’t made until January of the next year, but have to be reported for the prior year. These occur with mutual funds, Real Estate Investment Trusts and Unit Investment Trusts that post distributions with record dates in October, November and/or December of the prior year, but make payment in January of the next year.
  5. Payments described as dividends on monthly statements, but paid on shares selected in the substitute payment lottery process are reported as miscellaneous income on Form 1099-MISC.
  6. Income payments on certain preferred securities must be reported as interest, even though they are often shown as payments and dividends on the monthly statement.
  7. Original issue discount (OID) accruals may be identified and processed after year-end.
  8. Reporting on short-term discount securities (like Treasury Bills).
  9. Shares received as part of an optional stock dividend offering are valued and reported as income on the 1099-DIV.
  10. Corporate reorganizations, recapitalization, mergers and spin-offs creating stock or cash distributions are considered taxable events reportable on Form 1099-B.

Your year-end statements provide valuable information, however for tax reporting purposes, your best bet is to use the information contained on your 1099s.

This information represents our understanding of federal income tax laws and regulations, but does not constitute legal or tax advice. Please consult your tax advisor, attorney or financial professional for personalized assistance.

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