The Emergency Economic Stabilization Act of 2008 requires that brokerage firms and mutual fund companies report their customers' cost basis, gain/loss, and holding period to the IRS on their Consolidated Form 1099s when securities are sold. Prior to 2011, firms such as TD Ameritrade reported only sale proceeds.
The goal of the act is to help ensure the accurate reporting of gains and losses, and to simplify your year-end tax preparation.
This law is being implemented in phases over a three-year period, to cover Form 1099 reporting requirements to the IRS:
What you can expect
In order for us to report the information required by this new law, first we need to gather it. Therefore, on the TD Ameritrade Web site, when you enter an order that is covered by the law, a tax lot identification method is specified for that trade. A tax lot identification method is the way we determine which specific securities are deemed to be sold when there are multiple purchases of the same security on different dates at differing prices, and the entire position is not sold at one time.
We use "first-in, first-out" (FIFO) as the standing (default) tax lot identification method for equities (including foreign securities and American Depository Receipts—ADRS), Exchange-Traded Funds (ETFs), closed-end funds (CEFs) and securities eligible to enroll or already enrolled in a dividend reinvestment plan (DRIP). Starting January 1, 2012, FIFO will also be the default for mutual funds, which are impacted by the reporting regulations on January 1, 2012. Our current standing method is "average cost".
If the standing method is your choice, you don't have to do anything. If you prefer another method, you are able to select a different identification method as you enter your order.
Additionally, you have the ability to assign a specific lot for your trade from the Gain/Loss section of the Web site (under Accounts) from the day following execution and up to 11:59 pm ET on settlement date. Please note: This is a change from our current process.
Starting for tax year 2011, we are reporting cost basis data on the securities covered by law in the 1099-B section of the Consolidated Form 1099 you receive from us (if you receive one).
The benefits you'll see