At Betterment, we receive a lot of questions from customers about filing taxes. While we cannot provide tax advice (you should consult a tax professional), taxes are an inevitable part of the investment process. Here’s how we do everything we can to make your tax return preparation as painless as possible.
Everything In One Place
Tax considerations for investments require a lot of information—you need to keep track of dividends, cost basis, and realized capital gains and losses, to name a few.
Betterment does this for you and provides all relevant tax documents, available in early February, in a simple-to-read format. If you have multiple accounts with Betterment, such as joint and/or trust accounts, in addition to your personal account, all of your forms will be available in the Tax Forms section of your Activity tab.
The forms are not available prior to February due to the 30-day window related to certain Tax Loss Harvesting+ requirements, which carry through the end of January. Additionally, we need final confirmations on distributions from fund providers regarding their dividend payout classifications. Betterment strives to provide tax forms well in advance of the Feb. 16, 2016 deadline when possible.
Betterment provides all of the following forms depending on your account type:
- Form 1099-B: For taxable accounts, this form reports to the IRS all the gains and losses in your account as a result of sales made during the year. Securities are sold whenever you make a withdrawal or change your allocation, our algorithms execute a tax-loss harvest, or when we assess our management fee. This form must be included with your tax return if you have any gains or losses from sales. Note: 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, this form reports to the IRS all dividends you’ve received, and it is only required if the dividends amount to more than $10 over the course of the year.
- Form 1099-R: This form is only provided in your tax statement if you have an IRA and took a distribution in 2015. A distribution occurs in the case of IRA recharacterization, or when you make a withdrawal, roll funds over to another provider, or convert a traditional IRA to a Roth IRA.
- Form 5498: This form details any IRA contributions you’ve made for the 2015 tax year. We report this information to the IRS, but you don’t need to file this form (it’s for your records). Because contributions for 2015 are permitted up to April 18, 2016, this form will be made available separately in May. However, you still need to report your 2015 IRA contributions on your taxes by the deadline.
Once you receive our email notification in early February, click on the Activity tab in your Betterment account, where you’ll find PDF versions of your tax statements, including all the forms that are applicable to your account. We’ll also notify you of their availability when you log in.
To provide the best possible experience, Betterment works hard to provide your forms as soon as possible, which is often earlier than many others in the financial industry.
Integrated with Tax Software
You can also automatically import your documents into TurboTax, H&R Block Tax Software, or TaxACT. Import your information directly into any of these programs by entering your Betterment email and password, and your tax software will automatically download and calculate your tax information. Read more about importing your taxes.
If you are unable to automatically import your tax forms into your tax software because of the number of transactions documented (this could be the case if you have enabled Tax Loss Harvesting+ in your account), 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. You can get more information from the IRS here.
Tax Tips for Filing
- If you work with a CPA or tax preparation professional to file your taxes, you’ll want to provide him or her with a copy of your Betterment account statement. Your statement may be multiple pages in length because it reflects the total number of transactions Betterment made on your behalf for the year prior. The IRS requires Betterment to disclose these transactions, which may be associated with beneficial tax-efficient account features, such as Tax Loss Harvesting+ and smart rebalancing.
- Your account “number” is the email address associated with your Betterment account. For IRAs, we provide the account number on your tax form.
- Don’t forget to report any carryover capital losses from 2014 on Schedule D of your 2015 tax return.
- Take state and local exemptions for municipal bonds. If you held municipal bond ETFs, note that a portion of dividends paid by municipal bond ETFs including MUB, CMF, NYF, and TFI may be exempt from state and local tax. The applicable rules for exemption vary by state—consult your tax advisor. Please refer to the 2015 tax information published separately by iShares and SPDR.
- Max out your IRA contributions and make sure you report them. Traditional IRA contributions come from your pre-tax income and contributing to your IRA may lower taxable income. 2015 traditional IRA contributions can potentially lower your tax bill (or increase your refund) if you make those contributions before filing your 2015 taxes, but the IRS form reporting these contributions isn’t available until May. You can use the How to Save feature of RetireGuide to see how much you should be saving.
- Time your filing. Once you have your paperwork, you can estimate your taxes before they are ready to submit. File immediately if you will be receiving a refund. Delay filing until early April if you owe the IRS money. The rationale? That “loan” you have from the government is interest free, so no need to pay it off early.
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. If you haven’t already, consider rolling over an IRA or old 401(k) to Betterment—we make the traditionally complicated process simple and efficient. With Betterment, the more you roll over the more time you get for free.
Tax-Efficient Investing, Year-Round
At Betterment, we strive to keep your tax bill low with advanced features, such as:
- Tax Loss Harvesting+: By turning on this account feature, Betterment carefully assesses your portfolio to realize losses, 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 Impact Preview: Betterment is the only investing platform to offer real-time tax information. 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 increase your after-tax returns.
- TaxMin Cost Basis Accounting: Betterment goes beyond the industry standard (FIFO) to choose which lots of shares to sell by intelligently liquidating each of your lots when you withdraw, to minimize your capital gains.In addition to investing in tax-efficient ETFs and smart rebalancing, one of our key priorities is saving you money on taxes.
As always, our support team is available seven days a week to answer any questions you have about Betterment tax documents or your Betterment account.
More from Betterment:
- This Year Don’t Make Resolutions—Create Habits
- Dip into Your Taxable Account to Max Out Your IRA
- The Betterment Rollover: 60 seconds to a Financial Future
Betterment is not a tax advisor, and this article should not be considered personal tax advice. Contact a qualified tax advisor to understand your personal situation.