Dear Valued Client:
This guide contains illustrated examples and explanations of statements that you may receive depending on the type of reportable income you have in your account(s) held at LPL Financial. This guide is provided for informational purposes only and is compiled from reliable sources, but is not guaranteed. LPL Financial does not provide tax advisory services. It is recommended that you consult with your tax advisor or accountant before using this information for tax reporting purposes. Standard IRS instructions for each form are available on the back of the first page of your statement.
Your Tax Information Statement includes information on those securities held in your LPL Financial account. All taxable dividends, interest and Original Issue Discount (OID) reflected on this form should be reported on your tax return using LPL Financial as the payor rather than the individual companies that paid the dividends or interest.
While using this information to prepare your tax return, keep in mind that the IRS uses a matching system whereby they match the items reported on your Tax Information Statement with the items you report on your tax return. In general, you should report all amounts shown on your Tax Information Statement and then make adjustments, if necessary. Additionally, please check your name and taxpayer identification number as shown on your statement. If either is incorrect, please provide your financial representative with a completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
General Information for Preparing Your 2008 Income Tax Return
Important Reporting Dates:
- March 16, 2009 1099-OID for CMO, CDO, REMIC issued.
- March 31, 2009 Form 2439 reflecting any undistributed capital gains issued, if applicable.
- April 15, 2009 Personal income tax returns due, deadline for IRA documents filed to establish an account and make contributions for 2008 tax year.
- June 1, 2009 Form 5498 issued to IRA holders who made a contribution for the 2008 tax year.
You will receive a separate Tax Information Statement for each of your accounts with LPL Financial.
The Tax Information Statement reflects business conducted with your financial representative during the time LPL Financial acted as the clearing agent. If you transferred an account to LPL Financial from another financial institution during 2008, your previous firm(s) may send you one or more Form 1099s summarizing any account activity that took place before your account was transferred to LPL Financial. Please be sure to include all Form 1099s or 1099-Rs when filing your tax returns, if applicable.
Refer to the following forms and publications for specialized information. All IRS forms and publications are available through the IRS Forms and Distribution Center at (800) 829-3676 or on the web at www.irs.gov. For taxpayer assistance, you may call the IRS at (800) 829-1040.
- Publication 514 Foreign Tax Credit for Individuals
- Publication 550 Investment Income and Expenses
- Publication 551 Basis of Assets
- Publication 564 Mutual Fund Distributions
- Publication 590 Individual Retirement Arrangements (IRAs)
- Publication 1212 Guide to Original Issue Discount (OID) Instruments
Frequently Asked Questions on Form 1099 Tax Filing
Why is there a difference between my LPL Financial statements and what is reported to the IRS?
LPL Financial must adhere to IRS requirements when reporting on Form 1099s. This may result in differences between what is on your monthly and quarterly statements and what is reported to the IRS. For example, mutual fund distributions declared as payable to shareholders of record in December 2008 and paid in January 2009 are taxable as 2008 distributions and reported on Form 1099-DIV.
Why did I receive a corrected Form 1099-DIV?
Mutual Funds and REITs may reclassify income after we issue your Tax Information Statement. When necessary, we will send you a corrected Form 1099-DIV to reflect reclassified information.
What are the tax implications of investing in a foreign security?
Income from foreign securities or mutual funds that invest in foreign securities may be subject to a withholding tax by the country from which it was paid. Form 1099-DIV reports the gross amount of the dividend and the amount of foreign tax, if any, withheld at the source. You must report the gross amount of the dividend on your tax return; however, you may also be able to take a deduction or receive credit for taxes paid to a foreign country. In general, for dividends from a foreign corporation to be considered a “qualified dividend,” the foreign corporation paying the dividend must be incorporated in a U.S. possession, traded on a U.S. exchange, or incorporated in a country covered by a comprehensive tax treaty with the United States. For more information, consult your tax advisor or refer to IRS Publication 514, Foreign Tax Credit for Individuals.
How should I treat accrued interest on bond purchases?
Your Form 1099-INT reports the full interest payment credited to your account. To determine the amount of taxable interest, subtract the amount of accrued interest you paid at the time of purchase (found in the Non-Federally Reported section) from the full interest payment credited to your account. This calculation is performed on Form 1040, Schedule B, Interest and Ordinary Dividends.
What tax forms will I receive on Direct Business Mutual Fund orders?
If the liquidation* was placed through LPL Financial, you will receive IRS Form 1099-B from LPL Financial. However, you will receive IRS Form 1099-DIV or 1099-INT directly from the mutual fund company on any income payments received.
If the liquidation was placed directly with the fund, you will receive IRS Form 1099-B from the mutual fund company, as well as IRS Form 1099-DIV or 1099-INT on any income payments received.
* To verify where the liquidation occurred please check your trade confirmation or contact your financial representative.
Sample Tax Statements
Included in this Tax Information Guide are sample 1099 statements. Certain categories of transactions in this guide may not pertain to your account, and you will only receive 1099 statements for those types of income your account received during 2008.
Dividends and Distributions (1099-DIV)
LPL Financial is required to report to the IRS any dividends and other distributions credited to your account in 2008. Each transaction is listed separately in order to assist you in determining whether the payment qualifies for favorable tax treatment.
If you had over $1,500 in ordinary dividends, enter dividend amounts from this form on Schedule B, Form 1040. Enter any capital gain distribution amounts on Schedule D, Form 1040 as applicable. See the back of the first page of your Tax Information Statement for more details.
More from GFC, Below
- For 2008, box 1A shows total ordinary dividends that are taxable. Include this amount on line 9a of Form 1040. Box 1B shows the portion of the amount in box 1A that may be eligible for the 15% or zero capital gains rates. Report the eligible amount on line 9b of Form 1040, or see the Form 1040 instructions for how to determine this amount.
- Box 2A shows total capital gain distributions (long-term) from a regulated investment company or real estate investment trust. Report the amounts shown in box 2A on Schedule D (Form 1040), line 13. But, if no amount is shown in boxes 2C-2D and your only capital gains and losses are capital gain distributions, you may be able to report the amounts shown in box 2A on line 13 of Form 1040 rather than Schedule D. See Form 1040 instructions.
- Box 2B shows the portion of the amount in box 2A that is unrecaptured section 1250 gain from certain depreciable real property. Report this amount on the Unrecaptured Section 1250 Gain Worksheet – Line 19 in the Schedule D instructions (Form 1040).
- Box 2 C shows the portion of the amount in box 2A that is section 1202 gain from certain small business stock that may be subject to a 50% exclusion. See the Schedule D (Form 1040) instructions.
- Box 2D shows 28% rate gain from sales or exchanges of collectibles. If required, use this amount when completing the 28% Rate Gain Worksheet-Line 18 in the instructions for Schedule D (Form 1040).
- Box 3 shows the part of the distribution that is nontaxable because it is a return of your cost (or other basis). You must reduce your cost (or other basis) by this amount for figuring gain or loss when you sell your stock. But if you recoup all your cost (or other basis), report future distributions as capital gains. See IRS Publication 550 for more information.
- LPL Financial is required by law to withhold federal income tax from all reportable dividends, interest and gross proceeds paid to certain U.S. persons (including trusts, partnerships, etc.) who fail to furnish a valid taxpayer identification number or appropriate certification (IRS Form W-9). This is known as “Backup Withholding.” Include this amount on your income tax return as tax withheld.
Interest Income (1099-INT)
- LPL Financial is required to report to the IRS any interest income credited to your account during 2008. Interest income may be derived from U.S. or foreign corporations, U.S. government agencies, any credit balance with LPL Financial, certificates of deposit, bonds, notes, savings bonds, treasury obligations or other debt obligations. Per IRS regulations, two separate interest totals are given. Box 1 shows taxable interest paid to you during the calendar year. This does not include interest shown in box 3. Box 3 shows interest from U.S. Savings Bonds and/or U.S. Treasury Obligations. This may or may not be all taxable. See the back of the first page of your Tax Information Statement or IRS Publication 550 for more information.
- LPL Financial is required to report to the IRS any tax-exempt interest such as from municipal bonds, plus any exempt-interest dividends from a mutual fund or other regulated investment company. For 2008, box 8 shows the total tax-exempt interest. Include this amount on line 8b of Form 1040. This amount may be subject to backup withholding. Box 9 shows tax-exempt interest subject to the alternative minimum tax. This amount is included in box 8. See the Instructions for Form 6251, Alternative Minimum Tax – Individuals. You are required to report tax-exempt income on Form 1040 and may be required to report tax-exempt income on your state tax return.
Original Issue Discount (1099-OID)
- LPL Financial is required to report to the IRS any Original Issue Discount (OID) that is deemed to have been constructively received by your account in 2008. You will notice on your Tax Information Statement that we have reported the income individually for each OID obligation that was held in your account during the year. OID is the difference between the stated redemption price at maturity and the security’s original issue price. Securities issued with OID may include any bonds, notes, certificate of deposit, or other evidence of indebtedness having a term of more than 1 year. OID is classified as a type of interest income, and is taxable as interest over the life of the obligation. If you are a holder of a security that was issued with OID, you must include a portion of the OID in your gross income each year you hold the obligation, even if you did not receive any cash payments. If you purchased the security at original issue and owned the obligation for the entire tax year, report the entire amount as interest income on line 8a, Form 1040. If your total interest income including OID is over $1,500, also report the amount in Part 1, Schedule B, Form 1040. Special note: If you purchased the security at a price other than the original issue price, you may need to adjust the OID amount due and make the appropriate adjustment on your Schedule B, Form 1040.
Miscellaneous Income (1099-MISC)
- The amount shown in box 3 may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages or other taxable income. Generally, report this amount on the “Other income” line of Form 1040 and identify the payment. If it is trade or business income, report this amount on Schedule C, C-EZ, or F (Form 1040).
- Box 4 shows backup withholding. Generally, LPL Financial is required to backup withhold at a 28% rate if you did not furnish your taxpayer identification number. For more information, see Form W-9, Request for Taxpayer Identification Number and Certification. Report this amount on your income tax return as tax withheld.
- Box 8 shows substitute payments in lieu of dividends or tax-exempt interest received by your broker on your behalf as a result of a loan of your securities. Do not treat these substitute payments as dividends or interest. Report as “Other income” line 21 of Form 1040.
Proceeds from Broker and Barter Exchange Transactions (1099-B)
- LPL Financial is required to report to the IRS proceeds from transactions involving stocks, bonds, other debt obligations, commodities or forward contracts. The amounts reported in this section of your Form 1099 are indicative of any sales, redemptions, tender offers or maturities of any securities you may have owned in your account this year. The amount reported is the total amount received less interest, fees or commissions, but does not represent net profit. Each transaction is reported on a trade date basis and shows an abbreviated description of the security, CUSIP number, amount of proceeds and any taxes withheld.
- Reporting is also required on Form 1099-B when LPL Financial knows or has reason to know that a corporation in which you own stock has had a change in control or a substantial change in capital structure. You may be required to recognize gain from the receipt of cash, stock or other property that was exchanged for the corporation’s stock. However, if indicated in the notes column, you cannot take a loss on your tax return based on gross proceeds from an acquisition of control or substantial change in capital structure reported in box 2. Do not report this loss on Schedule D (Form 1040).
Additional Information & Items Not Reported to the IRS
This section of your Tax Information Statement reports federally tax-exempt long term OID on tax-exempt municipal bonds, any margin interest paid during 2008 (which may be deductible as an investment interest expense) and total return of principal. LPL Financial does not report this information to the IRS, but may be required to report the information to California or other state tax authorities. You are required to report tax-exempt income on Form 1040 and may be required to report tax-exempt income on your state tax return.
We do not report limited partnership distributions to the IRS. You should receive a Schedule K-1 (Form 1065, Partner’s Share of Income, Credits, Deductions, etc.) directly from the general partner. Typically, they do not issue their tax information until late March. If you do not receive a K-1 or have questions, you should contact your financial representative or the partnership directly. IRS Publications 925, Passive Activity and At-Risk Rules and 541, Partnerships, may be useful to you.
An equity option is any option to buy or sell stock, or any option for which the value is determined directly or indirectly in reference to any stock, group of stocks or stock index. If you traded or held equity options during 2008 in your LPL Financial account, you may have received taxable income. We are not required to and have not reported this information to the IRS. Please see your monthly statement(s) for transaction details.
Most taxpayers may deduct interest on margin accounts as investment interest in the year paid. Generally, your deduction for investment interest expense is limited to the amount of your net investment income and is calculated on IRS Form 4952 (Investment Interest Expense Deduction). The amount of investment interest that is deductible can be claimed on Line 14, Schedule A, Form 1040. See IRS Publication 550 for more information.
The LPL Financial family of affiliated companies includes LPL Financial, UVEST Financial Services Group, Inc., Mutual Service Corporation, Waterstone Financial Group, Inc., and Associated Securities Corp., each of which is a member of FINRA/SIPC.