Choosing a foreign broker. 1099-DIV issue.

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Mr.Bowtie
Posts: 4
Joined: Fri Apr 07, 2017 8:54 am

Choosing a foreign broker. 1099-DIV issue.

Postby Mr.Bowtie » Thu May 18, 2017 6:31 am

I'm an accidental US citizen with no real ties to the US living "abroad". This is the first year I invest & make "real" money. I haven't filed US taxes before (haven't needed to before this year) and the process is a little confusing. I now have two brokers to chose from (I made an earlier post regarding a different issue where only one broker was an option). One is very cheap, about $1 per trade and no annual fee and the other is fairly expensive at about $25 per trade and 0,1% annual account fee. The cheap one has terrible customer service and will not provide me with a 1099-DIV. The expensive one has amazing customer service and will provide me with a 1099-DIV.

How much is the 1099-DIV worth? Is having a foreign broker that doesn't provide a 1099-DIV a much greater hassle or just a little? I'll be using ETFs for the most part and replicate an index using individual stocks to get home country exposure (PFIC issues if I invest in a fund). I can imagine the 1099-DIV being especially helpful when dealing with mergers, spin offs or other events when investing in individual stocks, but I wouldn't really know because I haven't filed before.

Any insight would be greatly appreciated. :happy

TedSwippet
Posts: 1258
Joined: Mon Jun 04, 2007 4:19 pm

Re: Choosing a foreign broker. 1099-DIV issue.

Postby TedSwippet » Thu May 18, 2017 7:07 am

Mr.Bowtie wrote:How much is the 1099-DIV worth?

To you as an individual, in my experience mostly just worthless.

The primary function of the 1099 range of forms is to make your broker or other financial institution into an IRS informant, making it harder for you to under-report your own income on a US tax return. In that regard it is worth something to the IRS, but virtually nothing to taxpayers themselves.

It is entirely feasible, and quite easy, to function without one. As you are discovering, US persons living outside the US often have to operate in this way all the time. No 1099-INT, W2 and so on either. It is no big deal. Pick the best broker for you based on other factors, and ignore the availability of US tax reporting forms.

Karamatsu
Posts: 1311
Joined: Mon Oct 27, 2008 2:42 am

Re: Choosing a foreign broker. 1099-DIV issue.

Postby Karamatsu » Thu May 18, 2017 7:52 am

How much is the 1099-DIV worth?


The 1099-DIV isn't worth much at all, as long as you or your broker keep track of dividends received. There are some nuances. For example, return-of-capital often looks like a dividend but isn't.

I can imagine the 1099-DIV being especially helpful when dealing with mergers, spin offs or other events when investing in individual stocks, but I wouldn't really know because I haven't filed before.


I think you may be confusing 1099-DIV with 1099 generally. There are several different 1099 forms (DIV, INT, OID, B). The one that would be most useful in these cases (mergers, etc) is B. If it's well-done, that form can be worthwhile, especially if it lists the cost basis of each lot, which becomes even more valuable if you reinvest dividends and so end up with lots of small fractional lots.

Overall, especially if you're new at this, I recommend going with the more expensive broker because good customer service is worth a lot. Not just the 1099 but the willingness to help, and the attitude that it implies. Skimping on customer service is, as far as I'm concerned, clear evidence of a bad company... not one that I would want to deal with especially if they're a financial services company. Do yourself a favor.

bpp
Posts: 1881
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan Age:%bonds+10

Re: Choosing a foreign broker. 1099-DIV issue.

Postby bpp » Thu May 18, 2017 10:39 pm

The 1099-DIV is somewhat convenient, but I wouldn't pay those greater expenses just for that. (The service might be worth paying for, but I'm just talking about the 1099 itself here.) If you're going the individual stock route, you will need to keep good records by yourself anyway, so the 1099 doesn't help much.

One difference is that the 1099 will break out qualified versus unqualified dividends, etc. from your ETFs. Without that, you are kind of forced to treat all dividends as unqualified ones. If this might make a difference tax-wise for you, it might have value.

The other thing to make sure of is what the 1099 actually covers. I have a brokerage account that provides 1099s, but only for the US-domiciled ETFs in it. Any domestic assets are not be reported. Don't know how it would work in your case, but might be worth checking up on.


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