Turbotax Warning for Ameritrade Users, or How I Discovered I Was Rich
After my weekend adventure at work (see last post), I got home last night to discover my TurboTax waiting at the door. Turns out I didn’t need to save that five bucks after all. Turns out, I must be a millionaire.
If you’re an Ameritrade customer who uses Turbotax, beware: DO NOT ACCEPT TURBOTAX’S OFFER TO DOWNLOAD YOUR 1099-B FROM AMERITRADE! That was what I did at first, and actually thought to myself, “Wow, maybe I won’t have to turn backflips and say a chant with my eyelids inside out to get the tax stuff to work this year.” But I thought too soon. After it announced Retrieve Successful!, I glanced up at the running tally of my amount owed/ refund, and immediately did a screen capture:
That’s right. After TT eliminated most of my deductions (hey, that 2% threshold is pretty high for a millionaire), it announced that I owe $1,312,256 in Federal Taxes. And here I was fretting over balancing my checkbook.
The problem is that when you allow TurboTax to download your 1099s directly, the cost basis of your trades does not flow through, only the figure required to be reported to the IRS (which is gross sales), and your entire trading activity for the year shows up as income. And anyone who daytrades knows how easy it is to take a bare-bones pattern-day-trade account, pop in and out 10 or 20 times ina day, and rack up multiple hundreds of thousands in gross trades with a net of maybe a hundred dollars gained or lost here and there.
If you do trade thru TDAmeritrade and file your taxes with TurboTax, here’s the solution that worked for me:
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Allow TurboTax to connect to AMTD to download your 1099s
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Uncheck the 1099-B and “retrieve” only the 1099-INT
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Log onto your AMTD account and go to the Gain/Loss section of your account under the Portfolio & Accounts tab
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Select Get Report As TXF File
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Now go back to TurboTax and import that TXF file
As far as I can tell, the numbers came out accurately after that (and after deleting the multi-million dollar earlier import, of course).
Importing the TXF file completely fills out your schedule D, and things look a little more realistic. Beware, however, that if you allow TT to retrieve all the 1099s and import the TXF file, it still shows the “whoa nelly” figure, so you must be careful not to accept the auto-download of the 1099-B.
For someone with only a few trades for the year and a big income (i.e. the opposite of me on both counts), this problem may tag a few grand onto your income without your noticing if you simply “trust” TurboTax, and result in your paying taxes that you don’t owe.
I’m an old country farm boy. I don’t trust no one.
Oh, and do I need to add a disclaimer, like “I’m not a tax professional” or something. Is that not crystal clear? Duh!
dave said,
March 27, 2007 @ 7:17 pm
eTrade did the same thing for me … but I went in and manually adjusted. Wished I had read your instructions first.
Dinosaur Trader said,
March 28, 2007 @ 7:32 am
Great point about Apple. When everyone things it’s a screaming buy, it’s normally a sell.
William O’Neil, IBD founder, says that if you ever see a company’s CEO on the cover of a national magazine that it’s time to sell… In Apple’s case, this would have taken you out of the long trade a little early, but I get his, and your, point.
Weak Durable Goods report… maybe stocks roll today?
Bob Meighan said,
March 28, 2007 @ 9:14 am
Note regarding downloading brokerage information… Whether your brokerage provides cost basis with your stocks sold is at their discretion. Some brokerages provide this information so there is nothing more you need to do to get an accurate picture of Schedule D. TurboTax has no control over what the brokerages provide via the download. We simply give them the tools to provide as much information to us as possible. If your brokerage does NOT provide cost basis, TurboTax will flag each of the stock transactions in Final Review.
I hope this information helps.
Bob Meighan
VP, TurboTax
Will said,
March 28, 2007 @ 7:53 pm
Bob - Thanks very much for the info. I thought I had made it clear in the post that it was the data in the 1099-B download (”only the figure required by the IRS, which is gross sales”) that caused the surprise, and not an inaccurate calculation on the part of TurboTax. I apoligize if I didn’t. (I’m sure if that were all income, the tax calculation would have been spot-on).
However, TT didn’t hesitate in throwing out that million-dollar figure, and I can’t imagine there are many people paying income taxes of seven digits who use software on their home computer to file. I’d like to suggest a flag in next year’s version (Did you really mean to list all those sales with no cost basis? Perhaps your broker offers an alternate download which includes them. or Alert- we show your income increased four hundred million gazillion percent over last year… is this correct?), and not just a happy Retrieve Successful! message. If they didn’t know (without being prompted) to immediately go to the Sched. D and investigate, many folks would never make it to the Final Review (where TT offers the option of entering cost basis manually), and with a million-dollar figure staring at them from the top left of their screen– they’d stop and get out before that, thinking something must be “wrong” with TT.
Alternatively, a simple and effective adjustment may be to have TT kick out the “please manually enter your cost basis” screen before leaving the income section of the interview.
The main intent of the post was to remind people to double-check (and not blindly click-and-trust; there must always be some level of personal responsibility involved), and also not to both download the 1099s as suggested during the “interview” and import (duplicate) data separately via the .TXF file (it’ll happily allow you to do both).
I’ve been a TurboTax user since 1999, even through the dark C-Dilla days (but I’m a good nerd and had Drive Image on standby, so no harm no foul), and I have no doubt about its ability to perform accurate calculations. Just concerned- as TT has been modified to be more user-friendly and penetrate the market of “you don’t have to be able to fill out a 1040 to do your own taxes”, it may be good to include more intra-interview alert flags for those people, not unlike the old Out- of- Range alerts on various software, but friendlier.
Old goats like me don’t get too flustered by an indication of 1.3m in taxes owed, and can discover the problem (which, as you point out, is the download) and the solution in 2 beers or less, but tender young trader/tax filers may get pretty confused and clog up your help lines or, worse for ya’ll, uninstall TT in a panic and use something else because they have no idea what happened, and the words on their screen only say “Success”.
I appreciate your taking the time to stop by, and I continue to encourage everyone I know to buy TurboTax and use it for what it is… a thoroughly excellent aid in speeding up the process of them doing their own taxes.
amar said,
April 7, 2007 @ 10:05 pm
I am trying to import .txf file from Ameritrade and Turbo Tax says “No Information exists for other financial software (TXF file) filename”
I chose other Other Program (TXF file). then selected file to import( i got this file from TDAmeritrade.
can some one explain what could be going wrong.
Will said,
April 8, 2007 @ 9:30 am
amar - All I can guess is that, for some reason, the file is empty. Check and see if your TXF file is named Realized_(your acct no. here)_2006.txf … if it is, maybe go back and download that same file as an Excel or Text file (from the same “Export Data” page as the TXF) and look through it manually. If your Gain/Loss data seems to all be there, try re-downloading the TXF file (just in case it was corrupt) and try the import on that. Past that, I got nuthin’. Sorry.
kavu said,
April 11, 2007 @ 5:26 pm
Thanks for posting this, about 30 minutes ago, I discovered that I “owe” $2,965,994. I called Ameritrade. They were *useless* and directed me to Gainskeeper.
Before forking over a bunch of money to Gainskeeper, I searched the web and found your comments here. I would like to give it a try, but have a question. Once you had downloaded all those useless transactions, how the heck did you get them out of TurboTax? I just want to remove the Ameritrade import and restart that section but can’t figure out how to get that done.
Thanks.
kavu said,
April 11, 2007 @ 5:28 pm
Never mind, thanks. File/Remove Imported Data.
Will said,
April 11, 2007 @ 9:46 pm
kavu - Glad I could be of help! I can see from your “$2 million in taxes” that you’ve been a very good Amertrade customer as well; they should be treating you better. Thanks for the visit and best of luck w/ your trading and your taxes!