small change toward a rich life

Dueling deadlines: taxes and FAFSA

On January 31, I sat down at my computer with determination. This year, I would not wait until April. This year, I would calculate our taxes early. No 1040EZs here — we have complicated taxes that take hours and hours. Nevertheless, I was resolved to be done before the stroke of February.

Are you laughing yet?

sign: Have you paid your income tax this month?Now, it so happens that I sold stock for the first time ever in 2011.

When I was hired at ShareBuilder in 2006 they waived transaction fees for purchases in employee accounts. (There would be fees later, when I wanted to sell, but I didn’t think about the implications of that at the time.) I was just starting to learn about investing, and certainly didn’t have anything resembling a comprehensive strategy, so for the next two years I bought tiny amounts of whatever ETF looked good at the time, and let them sit there.

And then came the market crash of 2008. It wasn’t a lot of money to begin with, and suddenly it was a whole lot less. I didn’t want to think about the losses, so I pretty much just ignored the account for another couple of years.

(Want to know how naive I was? I bought a bank ETF in November 2007. Oy. Well, at least it was only $50.)

In early 2011, having learned a great deal more about markets and investing, I was consolidating and reorganizing our retirement assets under a new strategy, and I decided it was time to bite the bullet and jettison all those random ETFs.

So I sold them all. Nine different funds, each with a $7.95 trading fee, all but one of them at a loss. Ugh. But at least that was one less mess to deal with going forward.

And now it’s January 31, and I’m all gung ho to finish our 2011 taxes, and I’m zipping around to various websites downloading PDFs of our tax forms, and I get to ShareBuilder and …

No tax forms. I poke around for a while, and eventually find the message:

“The Emergency Economic Stabilization Act of 2008 changed the IRS reporting deadline for brokerages to February 15.”

The what now? Oh, the bailout bill, the one that led to TARP. Among other things, it requires brokerages to report the cost basis of stock transactions starting in January 2011. And extends the brokerages’ deadlines for all forms, even 1099-DIV dividend reports, for an extra 15 days.

sign: Tax Returns / Tax Accountant TaxI’ve never had to report a capital gain or loss before. (You only have to worry about those in taxable accounts, not retirement accounts like IRAs.) Those nine different ETFs were the result of 37 different buying transactions (I counted) — some little purchases of $25 here or $50 there, some mere pennies where I had dividends set to reinvest.

‘Cost basis’ gets complex when you reinvest dividends. I wasn’t about to bet that I could get the calculations right without the tax forms to work from. This new complication — on top of our usual mess of Schedules K and SE and stacks of teensy 1099s — caused my resolve to just shrivel up and disappear.

So you’d think, okay, that’s not really a big deal, right? Just wait a couple of weeks and do your taxes then.


My stepdaughter is applying to college for fall 2012. The FAFSA (Free Application for Federal Student Aid) requires AGI and other data from parents’ 2011 tax forms. And one of the schools she’s applying to has a FAFSA filing deadline of …

February 15.


Jak sent me an article on CNN Money that warns, “Estimating [your 2011 taxes] for the FAFSA can backfire.

“For example, your year-end pay stub may not account for 401(k) contributions, causing you to overstate your adjusted gross income. And every $10,000 you add can reduce aid by $4,000, according to FinAid.org. While you’ll eventually have to follow up with your 1040, by the time any mistake is corrected, you may have missed out on some aid.”

This is because most student aid is awarded from a finite pool of money on a first-come, first-served basis starting January 1. If you’re late to the party, it doesn’t matter how great your need is.

In our case the mismatch between federal tax reporting deadlines and school aid application deadlines hasn’t left us any choice: we have to estimate. I guess I’ll just aim on the low side, and hope.

Now I just have to see if, come February 15, I can find my determination again. I’m sure I left it lying around here somewhere.

(Photos by Walt Jabsco and ferret111.)

6 responses

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  1. Brooke says

    Have you checked again for your forms online? All of the brokerages say feb 15 as the date but all 3 of mine actually released them earlier. If you are using turbotax, you can download the forms directly into your return once available. If everything else is ready to go with respect to the inputs on your return it will insert your cost basis, sales prices, and generate your final return in a few minutes, leaving time to finalize the fafsa and drop it in the mail. If estimating is really the only option, you can probably call sharebuilder and ask them to give you your cost basis over the phone (but if you have a lot of different purchase dates and etfs the automatic download into turbotax is the way to go).

    • Karawynn says

      I hadn’t, but I just did, and: no love from ShareBuilder. Do you mind naming your three on-the-ball brokerages?

      • Stacy says

        Betterment had mine by the end of January, though it’s hardly a full fledged brokerage.

        • Karawynn says

          Isn’t Betterment basically a mutual fund? (As I recall, mutual funds aren’t included in the reporting until next year, so still had the January 31 deadline for this year.)

  2. Brooke says

    Vanguard sent and made them available online sometime in january, t.roweprice early february,and schwab sent paper forms earlier in february but is holding downloads into turbotax until today i think. The reason companies hold off until february(as opposed to sending things asap) is because it reduces the number of revised forms they end up having to send. Unfortunately in your case, the college does not seem to be up to speed on the new reporting rules.

    • Karawynn says

      Thanks, good to know.

      In a truly ironic development, today I received email from ShareBuilder: “The 2011 tax form for your ShareBuilder account will be ready before March 16 … The IRS allows us to delay the delivery of tax forms past the standard February deadline so we can minimize the chances of an amended tax form.”


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