I’ve seen a number of posts recently about how folks were happy to have filed their 2006 tax returns already. If you have investments, you might want to think twice about filing early.
An article in yesterday’s USA Today (which I thought about posting, but my headache did me in), notes that a number of investment companies have gotten permission from the IRS to deliver their 1099s up to 30 days late. These companies include Morgan Stanley, Merrill Lynch, Wachovia Securities, Edward Jones and Raymond James. Other companies, such as Fidelity, are warning that they may need to reissue their already mailed 1099s to make corrections.
Why? Changes in the tax law. Financial firms must now list on the 1099s tax-exempt interest income from dividends and bonds and note how much of such interest is subject to the alternative minimum tax. Mutual funds calculate this information and send it to brokerages. Patricia McClanahan of the Securities Industry and Financial Markets Association expects amended 1099s this year to number “in the millions … despite our best efforts.” Just how bad could it be? Cuts in the dividend and capital-gains tax rates in 2003 led to a 14% rate in corrected 1099s (from a historic level of 5% to 8%). Corrections have hovered at 12% and 13% the past two years, amid further tax-law changes.
The moral of the story: If you have investments, you might want to wait until March to file, to allow time for corrected 1099s to trickle in. And keep hoping that AMT doesn’t hit you, because congress failed to index it for inflation. That’s one of my big worries. But I can’t file yet anyway, as I’m still waiting on 1099s and my W-2.
