TXF Format Solves Broker Import Issues
Most tax preparation software provides some mechanism for the direct import of trade data from the broker. However,
direct import is too uncertain, much like rolling the dice.
There are hundreds of brokers and no standard format, so there are likely going to be errors. Trades may or may not be matched up.
Cost basis might be missing, and options trades might not be imported.
Not to mention, you have to give your tax preparation software the password to your financial account !
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 to guarantee successful import of trade data.
Most brokers will let you download individual transaction data or matched trades for stocks and options into CSV or XLSX format.
Active traders with hundreds or even thousands of trades should instead prepare the trade data externally in a spreadsheet,
convert it to TXF format, and then import into tax preparation software. It is the only way to know exactly what data gets imported.
Typically, one of the desktop products is required for TXF import, but the cheapest version is likely more than sufficient.
It is generally recommended to purchase the lowest priced desktop edition, because you can easily upgrade should you find it
insufficient. The program will even pester you to upgrade.
On the other hand, it is very difficult to downgrade should you find the more expensive product unnecessary.
You would have to call customer support, get the refund, remove the old software, make the new purchase, install the downgrade,
and then re-enter your data.
The TXF file import approach completely circumvents the many broker download issues, gives control of trade data back to the taxpayer,
and saves money.