Conflicting Tax Forms Create ‘Nightmares’ for Some Investors

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  • ‘Dirty little secret’ among advisers about flawed 1099-B forms
  •  Paper differences can put taxpayer in auditors’ crosshairs

Excerpts:

Brokerage firms are sending tax statements to clients and the IRS with information that differs from the taxes investors ultimately owe, leading some filers to appear to owe tax on profits they never made.

The federal tax code contains two sets of IRS rules — one that defines what information on taxable gains and losses that brokerages must report to their clients and the IRS, and another that defines how individual taxpayers report those gains and losses on their returns.

Those conflicting rules mean that the brokerage statements — known as 1099-Bs — don’t always reflect all of an investor’s accounts or original costs. It’s caused some investors to inadvertently draw the attention of government auditors.

That the statements can cause problems for unwary investors “is a dirty little secret,” said Robert Green, an accountant and the chief executive officer of GreenTraderTax, an accounting and consulting firm in Ridgefield, Connecticut. “Brokers don’t want this publicized.”…

Software Solution

Big hedge funds routinely use third-party trade software from firms like TradeLog to reconcile brokerage statements and trading logs “because they know” the statements “are screwed up,” Green said. But individual investors and smaller funds typically don’t…

 

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While I do not day-trade (I prefer swing trading and position trading on stocks), I want to thank you for the great content and webinars that you host. In particular, I thought that Robert Green did an excellent job going through the tax issues that traders encounter including 1256, mark to mark and other provisions. Robert did an excellent job summarizing the key provisions and explaining them in a concise and understandable manner. Unlike other "so called" experts" who hype "trader tax status" and other provisions to lower taxes, Robert realistically conveys both the risks and benefits in a balanced and professional manner. In listening to the seminar, Robert's passions and enthusiasm for the topic was consistent throughout the whole seminar. Lastly, his advocacy for fair and favorable provisions for investors and traders allows him to be well informed about potential legislation/regulation and hopefully to have a positive impact on the process. I would add that I have a Master's in Taxation from Pace University. I had the benefit of taking classes in the tax treatment of partnerships, corporations and financial instruments. More important, I wrote my thesis on the traders’ tax cases that have come out. In doing my research, I found that Robert Green's books and blog were very informative. I would highly recommend that traders listening to the call to purchase his materials and review the blog. While I cannot personally attest to the quality of Robert's consultations and preparation f tax returns, I believe that Robert has a good understanding of the key issues. Lastly, I would mention it is important to for traders to use a specialist tax accountant who has expertise and experience in this area, and not utilize a "generalist."

PB, CFA

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