No one likes tax season, but there are some steps you can take to reduce the headaches and make things easier for you and your CPA. Your preparer should tell you when they need all the information to finalize or to extend your return before the deadline. If you are asked to complete a questionnaire, there’s a reason why: Those documents cover most (if not all) of what you will need to provide for your return to be complete and accurate.
Most of life’s major events seem to have a tax impact: marriage, divorce, births, deaths, home purchase or sale, new business, inheritance, etc. Your preparer’s questionnaire is designed to ensure you don’t forget to include anything important. Be sure to review all the questions they ask, as things change from year to year.
As we approach April 15, here are some ways to make tax season go more smoothly — and a list of documents you might need.
Documentation Reported to IRS
• W-2s: If you work for an employer, you will have a W-2 that shows how much you earned and how much was deducted for taxes and other withholdings.
• 1099-NEC (MISC): If you are a contract employee, you can expect to receive this form.
• 1099-INT and 1099-DIV: If you earned interest from savings or investments, you may receive this form. The 1099-DIV reports dividends and distributions from investments. Sources for 1099s include bank interest, brokerage accounts, stock dividends and sales, sale of real estate, Social Security and 529 distributions, to name a few.
• Consolidated 1099: This brokerage tax form will show income from dividends, both qualified and non-qualified, as well as any capital gains and losses that occurred during the year.
• 1099-R: If you take a distribution from your retirement account, you will have a 1099-R that shows the amount of distribution and amount of taxes withheld.
• 5498: This form reports your total annual contributions to an IRA account and identifies the type of retirement account you have.
• 1098: If you own a home and pay mortgage interest, you will receive this form from your lender, showing the amount of interest that was paid and that can be deducted.
• 1098-T: If you have a dependent in college, you will receive this form that reports how much qualified tuition and expense was paid during the year.
• K-1: If you have any limited partner investments, you will receive a K-1 that shows each partner’s share of the partnership’s earnings, losses, deductions and credits. Examples include trusts, partnerships, and S Corporations.
Information Not Reported to the IRS That Requires Recordkeeping
• Business income and expenses.
• Charitable contributions, including donor-advised funds and qualified charitable distributions. Remember, when you make a donation to a qualified charity from a donor-advised fund or from your IRA (if you are over age 70½), you are not eligible for a charitable deduction at that time. You received a deduction when you added monies to the donor-advised fund, and you are reducing your taxable income when made from the IRA.
• Real estate taxes.
• Contributions to 529s, HSAs and IRAs.
• Medical expenses.
• Estimated tax payments.
Old Files You Should Retain
• In most cases, you should plan on keeping tax returns — along with W-2s, 1099s, records supporting itemized deductions and other documents — for a period of at least three years following the date you filed or the due date of your tax return.
• Keeping tax returns for the three-year period is tied to the IRS statute of limitations. The IRS generally has only three years from the filing date or due date of the return to assess additional taxes.
• In some cases, you may need to hold onto your records longer than three years:
— Keep tax forms for retirement accounts, such as IRAs, until seven years after the account is zeroed out.
— If you file a claim for worthless security or bad debt, you must keep those records for seven years.
— If you buy or sell property, you should keep property records until the statute of limitations expires for the year in which you disposed of the property.
Maintaining good records and approaching tax season efficiently can have other benefits; being proactive and comprehensive can help you minimize taxes. Along with your CPA, CD Wealth Management can help you develop tax strategies that will pay off now — and well into the future. Once you have filed your taxes, it is beneficial to provide your financial advisor with a copy of your return.
Remember, tax planning is not just a once-a-year event. We want to ensure you that we are evaluating the landscape for tax changes and strategies that may help save future dollars and keep money in your pocket.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market.
That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Sources: IRS, Carson, Baird
This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.
Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.
Past performance is not a guarantee of future results.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS. Investor Disclosures: https://bit.ly/KF-Disclosures
*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.