Taylor&Williams - personal wealth advisor

As you are gathering all of your W-2, 1099, 1098, contribution receipts, etc., be on the look out now for Schwab's 1099 forms.  You should have just received that form by mail or can now get it from the Schwaballiance.com website if you have signed up for E-delivery services.

If you have a taxable account (not a Roth, IRA, or other tax deferred account) then you will need from us a "Realized Gain / Loss" report in addition to complete your tax return.  We are mailing those forms now.

Here is a little more detail on how the tax and 1099 forms are handled for different types of accounts.  All accounts fall into one of two categories, and you may have accounts in both.

Qualified Accounts (Roth, IRA, Simple IRA, SEP, Education IRA, 401K, 403B, Annuity) - Qualified accounts only have to address taxes if money was taken from the account during the year.  So, if you have an account in this category and did not make any withdrawals / distributions, then you will not receive a tax form or 1099 on the account.  If you did take a withdrawal or distribution, then you will get a 1099 form showing the total distribution taken during the year.  This will have to be included in the preparation of your tax return.  Schwab and other custodians allow taxes to be withheld from distributions and sent to the IRS.  If that was the case the amount withheld will be included on the 1099 also.

Non Qualified Accounts (Brokerage, Individual, Joint, Trust, UTMA, Corporate) - Non Qualified accounts can be a little more confusing as amounts received in dividends, interest, and sales of securities must be include in tax return preparation each year.  The dividends and interest will be totaled on page one of the 1099, with details given later in the form.  The sales of securities is where the confusion can come into play.  Schwab's 1099 will include, typically on page 2, a section called "Proceeds from Broker Transaction."  That section is an itemized list of all the sales made during the year.  When we rebalance or change one fund with another from our performance measurement ranking, we are selling a security(ies) in that process.  Yet, Schwab's 1099 only includes the proceeds or amount sold for and does not include what was paid for each holding.  That is where our "Realized Gain / Loss" report comes into play.  This shows all the securities sold during the year, including the proceeds that should match what Schwab says, plus the purchase price and gain / loss.  These have to be included in your tax return as the IRS will see them on Schwab's 1099 and think that all the proceeds are gain otherwise.

Two more thoughts on the whole tax issue:

1 - The tax information you receive in either section above does not show actual performance for the year.  Qualified account tax forms only show amount taken out, whether the account value went up or down.  Non Qualified account tax forms only show sales made during the year and will not include holdings that have gone up or down, but are still held in the account.

2 - Extremely high taxable gain is a good problem to have!

Feel free to pass this along to anyone you think would benefit.  If we can help anyone that you know with Investment Management or Financial Planning, we would love the opportunity.

Brent Williams