A tax tip for people with online investments

If you use E*TRADE or Ameritrade, be warned that they don’t provide correct cost basis information to online tax software such as TurboTax. I tell you this after I just spent four hours fixing the useless data they provided. However, despite being completely useless, they are listed in TurboTax as providing investment tax information, so you might be tempted to import the data from them. If you do, you’ll be amused to find that you may owe more in taxes than you made that year, because your cost basis for each trade will be entered as zero and each will be counted as a short term capital gain.

If you make a lot of trades, and use a brokerage that doesn’t provide cost basis information, your best bet is to just download a TXF file from your brokerage website and import that into the desktop version of TurboTax. (For some reason, the online version doesn’t accept this kind of file.) You can still import the 1099-DIV and 1099-INT data from E*TRADE or Ameritrade, but just make sure to disable the importing of brokerage sale (1099-B) data. Otherwise, you’re better off just entering each trade manually from your online history.

And in case you’re looking for an alternative brokerage, I can heartily recommend Fidelity. Apparently, they are fairly unique in managing to achieve the highly elusive technological feat of exporting correct cost basis information online.

3 responses to “A tax tip for people with online investments”

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