Tax Statement Highlights
Tax-exempt interest dividend reporting is now on Form 1099-DIV
The 2012 Form 1099-DIV provides tax-exempt interest dividend and specified private activity bond
interest dividend amounts (mainly from mutual funds or other regulated investment companies) on lines
10 and 11. In prior years, lines 8 and 9 of Form 1099-INT included this information. Those lines will now
primarily report tax-exempt interest and specified private activity bond interest from individual municipal
bonds and not tax-exempt interest dividends from mutual funds. Since we have reported tax-exempt
interest dividends amounts in prior years, only the placement of this dividend information is new.
State income tax withholding amounts reported on Forms 1099-DIV, 1099-MISC, and 1099-B
As required by the IRS, if you were a California resident during 2012 and we applied California backup withholding to 2012 income and proceeds in your account, you will find this information reported on the Forms 1099-DIV, 1099-MISC, and 1099-B, as applicable.
Cost basis reporting to the IRS: mutual funds and DRIP plans included for 2012 overview of new regulations
Under the cost basis regulations, National Financial is required to report adjusted cost basis as well as gross proceeds to the IRS, and indicate whether the holding period of the disposed security was short-term or long-term in nature. The objective of these requirements is to help ensure that investors accurately report realized gains and losses from securities transactions in their annual tax filings.
These requirements apply to holdings that are classified by the IRS as "covered securities." The new requirements are being phased in over a four-year period, which began on January 1, 2011.
Note: For "noncovered securities," the previous reporting requirements remain including the security name, date of sale, sales price, and the quantity sold.
The IRS defines covered securities as follows:
Form 1099-B: further enhancements
- Stock in a corporation purchased on or after January 1, 2011
- Registered investment companies, including open-end mutual funds, and stocks acquired in dividend reinvestment plans purchased on or after January 1, 2012
- Additional types of securities, as determined by the Treasury Department, purchased on or after January 1, 2014
To support the implementation of the IRS cost basis reporting requirements, National Financial has made enhancements to the format of Form 1099-B for the 2012 tax year. These changes are designed to help you complete Form 8949, Sales and Dispositions of Other Assets, and/or Form 1040, Schedule D, Capital Gains and Losses. Many customers must complete Form 8949, providing 2012 sales, redemption, and exchange information, prior to completing Schedule D.
Completing Form 1040, Schedule D, and Form 8949
As in prior years, National Financial sends customers, and the IRS on Form 1099-B, tax reporting on the gross proceeds from their brokerage account activities. Beginning with tax year 2011, National Financial also reports on the Form 1099-B the cost basis information for covered securities as described above. Before tax year 2011, only account owners sent cost basis and realized gain/loss information to the IRS. This change in reporting does not mitigate the customer's responsibility to accurately complete all required tax forms, including Form 8949 and/or Form 1040, Schedule D.
De Minimis Reporting
National Financial continues to follow IRS rules governing de minimis reporting. This means that we are not required to send you a tax statement or report to the IRS if the amount on each of the Forms 1099-DIV, 1099-INT, 1099-MISC, or 1099-OID is less than $10.00. However, if you had any reporting on Form 1099-B, in any amount, we will send you a complete tax statement and report the regulatory information to the IRS. We will also send you a tax statement and report to the IRS if there was any 2012 withholding to report on your statement or if any foreign tax paid is reported.
Widely Held Fixed Investment Trusts
Due to IRS reporting requirements, National Financial has enhanced tax reporting for holders of securities known as widely held fixed investment trusts (WHFITs). Generally, securities in this category include:
- Mortgage pools (such as securities issued by agencies commonly known as Ginnie Mae, Fannie Mae, and Freddie Mac)
- Unit investment trusts (trusts holding a specified group of stocks, bonds, options, or other assets)
- Royalty trusts (such as trusts holding interests in properties producing gas, oil, or minerals)
- Commodity trusts (such as certain trusts that hold precious metals)
- HOLDRS (certain trusts that hold a specified group of stocks)
For all of these types of securities, we provide your prorated share of gross income and your prorated share of all expenses, as well as information you may need to accurately report sales and resulting realized gains and losses. For example, this means that we provide your share of all expenses incurred by the trust and your share of all income received by the trust before the trust has made any deductions for expenses. Throughout this guide, when applicable, we will describe how this information appears on your tax reporting statement.
Mortgage Pool Securities Information
We also wish to advise holders of mortgage pool securities, such as Ginnie Maes, Fannie Maes, and Freddie Macs, that we may mail you additional account tax information in a separate Mortgage Pool Statement by March 15. Due to IRS deadlines, National Financial does not receive this information in time to include it in your consolidated tax statement. This additional mortgage pool information may make it necessary for us to also send you a corrected tax form.
Royalty Trust Information
Also by March 15, if you owned a royalty trust, National Financial may mail you additional information relayed to us by the trust. You may find this information useful as you complete your tax returns.
If your account was transferred to National Financial from another brokerage or clearing firm during 2012, your National Financial tax statement will only include activity from the time you started conducting business with us. Your former brokerage or clearing firm should provide Form 1099 and any other applicable tax reporting forms for 2012 activity that occurred prior to the transfer.