Active traders used to dread tax season, and not just because
of the money they owed the government.
Moving in and out of the market, cutting losses, pyramiding
your positions and taking solid profits added up to a lot of
trades each year. And getting all that data organized for the IRS
But now the best brokerages make downloading your transactions
into tax prep programs nearly effortless.
"This is a virtual necessity for investors," said Jim Buza,
vice president of advice and guidance products for Fidelity
Investments. "It saves a potentially huge amount of work. And
automating the process cuts opportunities for errors."
Investors should check to see if a brokerage they're thinking
of using downloads to the tax-prep program they use.
Very active traders should make sure the brokerage they're
considering offers a high-volume record-keeping program such as
GainsKeeper or TradeLog.
Other resources include extensive tax education and
information you can use in preparing your own return. Information
is strongest in some areas related to the mutual funds and
accounts that many of the brokerages have long focused on.
Fidelity Investments' page on "Answers to Your Top Tax
Questions" features links to explanations of contribution
deadlines for individual retirement accounts for the 2012 tax
year and of the contribution limits for 2013.
site starts with the basics. It answers questions such as:
When will shareholders receive tax forms from the firm? Those
forms range from the 1099-DIV for dividends, to the 5498 for
contributions, conversions, re-characterizations and rollovers to
an individual retirement account.
Fidelity.com -- cited in the
Best Online Brokers
survey -- also reviews new regulations that affect your tax
filing. And the site has a link to a page that lets you view
year-end distributions from your Fidelity funds.
Yet another link leads to a discussion of how you can convert
a traditional IRA to a Roth, or vice versa.
Type "taxes" in
) search window, and a live-chat window opens. A list of links to
the brokerage's posting on tax-related topics also appears.
Charles Schwab 's (
) Rodney Prezeau, senior vice president of client experience,
reminds investors: "We are not a tax provider. We train our
financial consultants and portfolio consultants to be aware of
tax-efficient investing ."
If you are self-employed and are trying to decide whether to
open a solo 401(k) plan, Simple IRA, SEP IRA, profit-sharing plan
or money-purchase plan, you can check out
chart comparing all of their features.
Tax strategy plays a role in deciding whether to buy bonds and
which type. Many brokerages offer information about the pros and
cons of fixed income securities and approaches, like bond
ladders. Several, including E-Trade and Fidelity, also let you
Cost-basis information is widespread.
explains the new federal rules and their starting dates for
stocks, mutual funds,
, options, bonds and other securities. The brokerage also
describes how the rules are reflected in changes to cost-basis
tax documents it provides to customers.
In And Out
explains the pros and cons of cost-basis methods such as first
in, first out (known as FIFO) and last in, last out (LILO). FIFO
is often the default method used by brokerages.
Why the reminder? When you make money investing in stocks and
want to sell part of a position, your gut instinct might be to
sell the oldest shares first, aiming for the lower tax rate on
long-term capital gains. But older shares might have cost much
less than newer ones, resulting in a bigger cap gain.
Fidelity and USAA provide links at their tax centers that may
let you buy TurboTax tax-prep software at a discount.
USAA also posts a list of 13 often-overlooked tax
Investors in Vanguard's municipal-bond funds can find a
state-by-state breakdown of their tax liability at the fund
giant's tax center.