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?
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 didnâ€™t think about the implications of that at the time.) I was just starting to learn about investing, and certainly didnâ€™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 wasnâ€™t a lot of money to begin with, and suddenly it was a whole lot less. I didnâ€™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 itâ€™s January 31, and Iâ€™m all gung ho to finish our 2011 taxes, and Iâ€™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:
â€œThe Emergency Economic Stabilization Act of 2008 changed the IRS reporting deadline for brokerages to February 15.â€
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 brokeragesâ€™ deadlines for all forms, even 1099-DIV dividend reports, for an extra 15 days.
Iâ€™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.
â€˜Cost basisâ€™ gets complex when you reinvest dividends. I wasnâ€™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 youâ€™d think, okay, thatâ€™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 parentsâ€™ 2011 tax forms. And one of the schools sheâ€™s applying to has a FAFSA filing deadline of …
Jak sent me an article on CNN Money that warns, â€œEstimating [your 2011 taxes] for the FAFSA can backfire.
â€œFor 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.â€
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 youâ€™re late to the party, it doesnâ€™t matter how great your need is.
In our case the mismatch between federal tax reporting deadlines and school aid application deadlines hasnâ€™t left us any choice: we have to estimate. I guess Iâ€™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. Iâ€™m sure I left it lying around here somewhere.