What should I expect when filing my tax return as a Betterment client?

Getting ready to file your taxes? Here’s what you can expect when filing your tax return as an investor.

We receive a lot of questions from customers at tax time. Taxes are an inevitable part of investing. Here’s how we can help make your tax return preparation as painless as possible.

Please note that Betterment is not a tax advisor—please consult a tax professional for additional guidance, including help with the preparation and filing of tax returns.

You’ll Be Able To Download Your Tax Forms

There are many tax considerations when investing—you may need to keep track of dividends, cost basis, realized capital gains and losses, and sometimes even more.

Betterment keeps track for you and provides all the tax documents you need. We may also provide you with a Supplemental Tax Form that calculates key tax information for your taxable accounts, including how much you earned from U.S. government interest, your income from foreign sources, and your dividends from state municipal bonds both inside and outside your state of residence.

You’ll be able to download your tax forms within your account, either at the end of January for IRA and Cash Reserve forms, or in the middle of February for taxable account forms. We’ll email you once they are ready.

The forms for taxable accounts are not available earlier because we must await final confirmations from fund providers regarding dividend distributions and their appropriate classifications. Waiting helps us avoid costly mistakes both for you and for us.

Types of Tax Forms

  • Form 1099-B: For taxable accounts.
    • Reports all the gains and losses in your account as a result of sales made during the year. Securities are sold whenever you withdraw, change your allocation, we execute a tax loss harvest or rebalance, or we assess our management fee.
    • This form is only provided if you had proceeds of at least $20 or had federal backup withholding. This form must be included with your tax return if you have any gains or losses from sales.
    • Your 1099-B may be quite long if you have enabled Tax Loss Harvesting+ in your account, or if you have frequent allocation changes or withdrawals. This is to be expected, as the form reflects every sale you have made inside your portfolio for the year.
  • Form 1099-DIV: For taxable accounts.
    • Reports all dividends you’ve received. It’s only provided if your dividends amount to more than $10 over the course of the year, if you had any amount of foreign tax paid, or if you had any amount of federal backup withholding.
  • Supplemental Tax Form: For taxable accounts.
    • It includes the amount of foreign source income you earned, the amount of U.S. government interest you earned, and lastly, the total amount of dividends you received from municipal bonds from inside and outside your state of residence.
    • If you have holdings outside of Betterment’s core portfolio sets, we will not be able to calculate this information for you. If you do not receive a 2023 Supplemental Tax form and need to determine figures typically detailed on this form, please contact Support.
  • Form FMV and RMD: For IRA accounts that carried a balance during the year.
  • Form 1099-R: For IRA and 401(k) accounts that had a distribution of $10 or more, or had any amount of federal or state tax withholding within the last year.
    • A distribution occurs in the case of IRA recharacterization, or when you make a withdrawal, convert a traditional IRA to a Roth IRA, or roll funds over to another provider. However, a direct IRA-to-IRA transfer will not be and does not need to be reported on a 1099-R.
  • Form 5498: For any IRA contributions, rollovers, conversions, and recharacterizations you’ve made for the current tax year.
    • We report this information directly to the IRS, so you don’t need to file this form—it’s just for your records. Note that the 5498 is generated after the April tax filing deadline. The reason for this is because it’s up to you to self-report your IRA contributions.
    • Direct IRA-to-IRA transfers will not be reported, per the IRS.
  • Form 1099-INT: For Cash Reserve.
    • Reports interest received in your Cash Reserve account.
    • It’s only provided if your interest amounts to more than $10 over the course of the year, or if you had any amount of federal backup withholding.

You’ll Be Able To Import With Tax Software

You can also automatically import your documents into TurboTax, H&R Block Tax Software, or TaxACT, starting on Feb. 15, 2024. Import your information directly into any of these programs by entering your Betterment email and app password, and your tax software will automatically download and calculate your tax information.

If you are unable to automatically import your tax forms into your tax software because of a high number of transactions on your forms, the IRS allows you to report the summary information on your electronic tax return and send a paper copy of your statement with Form 8453 to the IRS after your tax return has been accepted.

Additional Tax Tips for Smart Filing

  1. If you work with a CPA or tax preparation professional to file your taxes, you’ll want to provide them with a copy of your Betterment 1099s. Your statement may be multiple pages in length because it reflects the total number of transactions in your account. The IRS requires us to disclose these transactions, which may be caused by beneficial tax-efficient account features, such as Tax Loss Harvesting+ and smart rebalancing.
  2. Don’t forget to report any carryover capital losses from prior tax years on Schedule D of your tax return for the current year.
  3. Take state and local exemptions for municipal bonds. If you held municipal bond ETFs, a portion of dividends paid by municipal bond ETFs, including MUB, CMF, NYF, and TFI, may be exempt from state and local taxes. The applicable rules for exemption vary by state—consult a tax advisor. You can find additional information here.
  4. Consider maxing out your IRA contributions and make sure you report them if they are contributions to a Traditional IRA. Roth IRA contributions are exempt from tax return reporting. Traditional IRA contributions may lower your taxable income. Traditional IRA contributions can potentially lower your tax bill, or increase your refund.
  5. Time your filing based on what you owe or what you expect to get back. Once you have your paperwork together, you can estimate your taxes before you submit your return. File immediately if you will be receiving a refund. You may want to consider delaying filing until early April if you owe the IRS money (and are not accruing interest). The rationale? That “loan” you have from the government may be interest-free, so no need to pay it off early.
  6. Note that any IRA rollovers and conversions count for the calendar year in which they are performed—your tax return deadline does not apply to these activities. 

We Have Your Back With Tax-Efficient Features

We strive to keep your tax bill as low as possible with tax-efficient features at no additional cost.

  • Tax Loss Harvesting+: Betterment will carefully assess your portfolio to realize losses on purpose with the flip of a switch, which can offset capital gains. By realizing and selling securities that experience losses, or “harvesting” losses, you’re able to offset taxes on both gains and income. The sold security is replaced by a similar one, helping to maintain the optimal asset allocation and expected returns.
  • Tax Coordination: Setting up a Tax-Coordinated Retirement goal with your long-term investment accounts can help boost after-tax returns. It works by tax-efficiently reorganizing your investments across your long-term taxable account and IRA accounts. It puts assets that are taxed more into your IRAs, which already have big tax breaks, and puts assets that are taxed less into your long-term taxable account.
  • Tax Impact Preview: This feature shows an estimate of the taxes you may owe before you change your allocation or make a withdrawal. This encourages smart investor behavior, and can ultimately help increase your after-tax returns.
  • TaxMin Cost Basis Accounting: We go beyond the industry standard (FIFO) to choose which shares to sell by intelligently liquidating each of your shares when you withdraw, in order to help minimize your capital gains. In addition to investing in tax-efficient ETFs and utilizing smart rebalancing, one of our key priorities is saving you money on taxes.

TurboTax is a registered trademark of Intuit, Inc.

HR Block is a registered trademark of HRB Innovations, Inc.

TaxAct is a registered trademark of TaxAct Holdings, Inc.

This article is provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures.

If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that you are receiving this email solicitation as part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.