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Some thoughts on tax preparation

I realize that for pretty much everyone out there this post is a bit untimely, since tax returns were due on April 15th and it's now late May. However, I am a US ex-pat living abroad and I've got extensions in place. My company has a professional tax preparation service to help ex-pats deal with the unique tax issues that arise from this situation. [Perhaps some articles about my ex-pat experience would be worthwhile posting here?]

I got a bit of a kick in the bum earlier this week by our internal tax team, asking that I complete my tax organizer early in order to avoid excessive costs associated with paying our tax preparer. This was great, because otherwise I would have waited until August or September like I did last year, and not get my refund until October. It's also great because I'm a company man and a shareholder, so any way I can help avoid cost for my employer is good for everyone.

I had completed everything except the portion where I had to list out all my brokerage transactions. I've been putting this off because I did a tremendous amount of transactions last year, day trading quite a bit. I had stacks and stacks of paperwork to go through, ensuring every last dollar was balanced out properly. In doing this I had a few thoughts:

1. Stick to one brokerage account (or as few as possible, at least): last year I traded in three brokerage accounts, four if you count the one where my company stock grants are deposited. This means I had multiple 1099's, schedule D's, and other tax forms that needed to be carefully reviewed. It becomes especially hard because each broker reports this information differently and you have to deal with collecting multiple tax documents to support the return.

2. Create as few tax lots as possible: this isn't totally problematic in terms of completing my return, it just results in a lot of paperwork. Sharebuilder is the classic example: I sold securities last year that I had been adding to on an almost weekly basis since 2008, and so all those lots are detailed on the 1099. It was a whopping 36 pages. The biggest culprit here: dividend reinvestment. In a taxable account, a dividend reinvestment is a tax lot. Sharebuilder is a funny thing, it makes it really easy to build positions for a reasonable cost (assuming you buy big enough lots), but when it comes time to sell, it can get confusing. I'm not against "scaling in" or "averaging down" because I do it all the time, but in the Sharebuilder account I was buying pretty much the same stuff every Tuesday, give or take.

3. Start as soon as possible: brokerages are required by the IRS to provide your tax documents by February 15th, but they are allowed to file extensions, some as late as March 30th. We all know that procrastination is bad, but in the case of someone with a large number of trades to record it can be a major detriment. I'm lucky in my circumstances, I've got extensions and support doing my taxes, but it was still a lot of work. In a perfect world I can send the tax preparer all my forms and have it done, but the way this system works still requires me to record all my transactions, so I may as well have done the tax filing myself if it weren't for all the exotic tax rules for ex-pats that I don't know about.  And honestly, I was going to do this weeks ago, but I got caught up doing things much more fun than tax returns. But I hunkered down for about three hours and knocked it out. Which brings me to my next point...

4. Do it in as few sittings as possible: I know sometimes it can be easier to do these types of things in small allotments, especially if you work on your return each time a new tax document comes in, but sometimes you just need to focus on everything all at once. In my case, I completed the basic information, interest and dividends, but when it came to the brokerage transactions I just froze. There were so many, and there were three active accounts. I procrastinated for weeks, then I got the motivation from my employer, and decided to just knock it out. I had to go into the office so I could use my large screen monitors. I drank a few cups of coffee, poured all over my paperwork, and completed the transaction worksheet in about three hours. No distractions.

That's it! It's just about getting it done and doing it right. My goal for the 2013 tax year is to transfer all my remaining securities into the Interactive Brokers account, so there's one source of brokerage data to maintain. I'm repatriating as well so I have one more year of tax drama to deal with before getting back into regular US resident tax rules, then it will be back to using TurboTax and getting my return on time. 

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