Should I Import Trades Directly From My Broker ?

Should I Import Trades Directly From My Broker ?

While most tax preparation software provides some mechanism for the direct import of trade data from the broker, be wary. Direct import is too uncertain, and using it is like rolling the dice.

There are hundreds of brokers and no standard format, so errors are not that uncommon. And when the IRS makes changes to their reporting rules for capital assets, brokers may update their import format. There is just way too much potential for chaos.

Sometimes trades are matched up, and other times only sales transactions are provided. It's also possible that non-covered securities or options trades are completely excluded from direct broker import.

How will your broker handle expired options ? And what happens with stocks purchased in prior years ? Will cost basis be included ?

Then there's the security issue. Direct broker import requires that you provide your tax preparation software with the password to your financial account !

So what's the best way to get your trades into your tax preparation software ?

Instead of hoping that the unknown broker format and your tax preparation software will be in agreement each year, the universal TXF format should be used. Most brokers will let you download data for stocks and options into Excel format.

Can I import my Excel file of trades ? Can I import my TXF file of trades ?

Prepare the trade data externally in a spreadsheet, convert it to TXF, and import into tax preparation software. You will know precisely what data gets imported, and you can keep your password protected.

Most tax preparation software includes TXF import. Some software may opt for CSV file import instead, but the process is similar to TXF files.

The TXF file approach completely circumvents broker download issues and gives you back control of your trade data.

You will need software to generate the TXF file, like Schedule D Tax Tool.