The best online broker at tax time
By Jamie Heller, CBS.MarketWatch.com
Last Update: 12:01 AM ET March 25, 2002
NEW YORK (CBS.MW) -- Online brokers can seem an awful lot alike. But come tax time, one standout emerges.
Hands down, Fidelity is tops. From major features to small details, it offers an as-yet unparalleled array of tax-related services.
This may sound like an ad, but facts are facts. Its clients can send tax information directly to not one, but two tax-prep programs -- Intuit's TurboTax and H&R Block's TaxCut or Online Tax Program.
Plus, the brokerage has a comprehensive, internal record-keeping system that helps investors make tax-wise trading decisions year-round and track the tax implications of those trades.
Other brokers offer some similar services -- Cititrade and to some extent E*Trade -- are impressive in this area, and Datek and Ameritrade Plus (formerly NDB) have an arrangement with GainsKeeper.com that helps investors prepare their Schedule D report of capital gains and losses. But in general, no major online broker has put the energy into tax services that Fidelity has.
Service doesn't come for free. Fidelity charges some of the highest commissions in the online brokerage business. But to the extent a customer takes advantage of its tax offerings, the money saved by tax-strategic selling and/or accounting fees could well make up for those pricey trades.
Tax software solutions
The first way Fidelity emerges from the pack is with the tax-prep tools TaxCut and TurboTax. Fidelity is one of a handful of brokerage firms that enabled its clients to import their investment information directly into these programs, programs that help you prepare and, if you're so inclined, electronically file your taxes.
Other online brokers who also are partnered with Intuit, maker of TurboTax, include TD Waterhouse, Cititrade, and CSFBdirect. Hat's off to them for offering the service to customers.
But Fidelity goes farther than others. First, it's the only major online broker also hooked up with H&R Block. More important, it enables you to import a vast array of information. It's not just your 1099s, which include sales data, but also cost-basis information (how much you paid for shares) and trade dates -- the stuff you need for a Schedule D. You can even import info for options trades.
Schedule D
Other brokers, including Datek and Ameritrade Plus, work with GainsKeeper.com, which generates a Schedule D report of capital gains and losses. (A tax-prep program like TurboTax can create a Schedule D, but it needs to receive all the relevant purchase and sale info either through an import or manual inputs. GainsKeeper tracks that info throughout the year and then automatically produces a Schedule D, taking into account matters like wash sales and stock splits.)
While GainsKeeper can gather recent transaction information from many brokers, these two brokers are among a handful that have designed ways to allow GainsKeeper to import a whole year's worth of information or more.
That's what you need to complete the Schedule D if you haven't been importing transaction info all along. And Ameritrade Plus offers its customers a 20 percent discount on the GainsKeeper subscription (prices vary). See a full list of brokers working with GainsKeeper
So why doesn't Fidelity go the GainsKeeper route? Its internal systems are so comprehensive that its customers mostly don't need GainsKeeper, a spokesman says.
GainsKeeper would be useful for Fidelity customers only if they have more than one Fidelity account or have multiple accounts across brokers, says Cameron Routh, GainsKeeper's vice president of partner relations. Fidelity, he says, does "the best job of all the brokerages out there in terms of an in-house solution."
The old fashioned way
So what if you're not the TurboTax/GainsKeeper high-tech type?
The same Fidelity systems that make the import feature work can help you make tax-wise trades. When you sell stock, for example, you can identify online which specific shares or "lots" of a position you want to sell, either the lower-priced ones or higher-priced, depending on whether you are trying to maximize or minimize gains or losses.
E*Trade apparently has the same feature, according to its customer service representatives. (You can do specific lot trading without online entry, but the feature makes record keeping easier.)
Both Fidelity and E*Trade, as well as Schwab, help customers who are moving shares from another firm to input online the cost basis -- purchase price -- for those shares into the system for future records. That sure beats sorting through shoe boxes.
One step backward
If there's a bone to pick with Fidelity, it's pricing. Last year, the broker offered its customers TurboTax on the Web for free for federal and state filings.
This year, it's a 50 percent discount only off the federal filing. Plus, the prices went up. Last year federal filing with the standard TurboTax program was $14.95, this year $19.95, for filings before April 1.
In contrast, TD Waterhouse went from no discount last year to 20 percent off this year on federal and state. Minor matters, perhaps, but at tax time every cent counts |
