Do you have all your other tax documents together, maybe even an appointment scheduled with your accountant…only to find out that you're still waiting on your 1099 tax forms from your investments?
Have you ever wondered why your 1099s always come so late?
Prior to 2011, these tax forms always arrived on a timely basis, often by the end of January. Ever since they’ve been arriving as late as mid-March…why?
Allow me to give you a brief history lesson…
Before 2011, the IRS basically said that it was the responsibility of the individual investor to report their investment gains and losses on the “honor system”. Needless to say, that didn’t quite work out for them and they soon found out that was a faulty system that inhibited their ability to collect taxes on investment gains.
So after The Great Recession, there was a law passed (the Emergency Economic Stabilization Act if you really care about the details), which shifted the responsibility for tracking things like cost basis and investment gains/losses from the individual investor “honor system” to the responsibility of custodians (aka where your investments are held at). Now that a 3rd party was in charge of reporting, theoretically the IRS would be collecting more taxes.
Custodians face tremendous challenges compiling this data. It required a complete revamp of their systems; staff had to be hired, and software systems implemented to deal with the new laws. It has literally changed the infrastructure of their business. The result has been the long delays in delivery of the 1099 forms. The IRS realized this and so they gave them an extended deadline for the delivery of these tax forms.
This aspect of tax reporting has been very irritating, but there is good news – beginning this year, the IRS is mandating delivery of 1099’s by February 15th. This is great news for investors and their tax professionals. Needless to say, the first quarter of every year will always be a busy time for the financial services industry, but this new deadline should alleviate the headache of having to wait to file taxes last minute, and will hopefully make tax season more harmonious.
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About The Author:
Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.