Time to Read: 8 Minutes
Gathering your tax documents needed to file your returns is a chore, but we’ve tried to simplify it by presenting a series of questions. These questions are intended to help you gather all your key tax information, expedite the filing process, and make sure your taxes are reported correctly. Of course, you should always work in concert and at the recommendations of your qualified CPA.
1099s – Do I have all my tax documents for my non-retirement investments?
Context: You may have accounts that earned little income, were liquidated, moved to another financial institution, or transferred into your trust for certain estate planning reasons.
Tax Forms: In February, you’ll normally receive a tax document for any non-retirement account you own. There’s an exception for any account that made less than $10 of income or had no realized losses during the year.
For example, an account holding a single stock that paid no dividends, interest, or capital gains might not generate a 1099. But if you decided to sell that stock for a loss, you should receive a 1099 reporting the details of that transaction. Don’t forget to collect tax documents for any accounts you may have closed, transferred, or retitled during the prior tax year.
1099s – Will I receive tax documents for my retirement accounts?
Context: If you withdrew or contributed money to a retirement account, you would receive a tax document which should be given to your CPA.
Tax Forms: If you took money from your retirement account last year, you would receive a 1099-R in January for your distributions taken. This form should be given to your CPA. If you added money to a retirement account, you would receive a 5498 in February or May for your contributions made. This form isn’t needed to file your taxes, but make sure to let your CPA know if you made contributions. If you don’t report your contributions, you might miss out on a tax deduction.
Required Minimum Distributions – Was I required to take money out my IRA last year?
Context: A required minimum distribution (RMD) is the amount of money you must withdraw from your IRA each year beginning in the year you turn age 72 (or, in certain cases, if you inherit an IRA). While RMDs normally must be taken out of your IRA by December 31st each year, you may delay taking your first RMD until April 1st of the year after you turn 72.
Tax Forms: If you turned 72 last year and elected to take your first RMD by December 31st, you will receive a 1099-R in January for the money you took out of your IRA. Since RMDs are generally taxed as ordinary income, your 1099-R should be given to your CPA.
Schedule K-1 – Do I own any alternative investment with a special type of tax form?
Context: You may own certain partnerships or other alternative investments that report earnings on a Schedule K-1 instead of a 1099. This form reports your share of partnership earnings, losses, deductions, and credits.
Tax Forms: While you will typically receive K-1s in March, sometimes they may not be available until after the April 15th tax filing deadline. Your CPA cannot file your tax return without your K-1s. Make sure to let your CPA know to file for an extension if you expect to receive your K-1s late. But remember that even if you file an extension, your taxes are still due by April 15th.
Backdoor Roth – Did I make a “backdoor” contribution to a Roth IRA?
Context: A backdoor Roth contribution is a way to add money to a tax-free Roth IRA even if your income is too high to make a direct contribution. To make a “backdoor” Roth contribution, you simply contribute cash to a Traditional IRA and then immediately transfer the money into a Roth IRA. Despite talk about new tax legislation eliminating the backdoor Roth contribution, nothing has changed yet. While we don’t know if this strategy will be available in future years, it is worth taking advantage of while it still lasts.
Tax Forms (3). If you made a “backdoor” Roth contribution you’ll likely receive three different tax forms. In January, you will receive a 1099-R for the money you moved from your Traditional IRA to your Roth IRA. This form should be given to your CPA. Oftentimes after the tax filing deadline, you will receive two 5498s. One for the contribution to your Traditional IRA, and another for the contribution to your Roth IRA. While the 5498s aren’t needed to prepare your taxes, you should keep them for your records and let your CPA know that you made a “backdoor” Roth contribution.
Roth Conversion – Did I convert Traditional retirement funds to Roth?
Context: A Roth Conversion is a way to move money from your tax-deferred Traditional IRA to your tax-free Roth IRA. You would pay taxes now, but eliminate unnecessary RMDs later, and build tax-free growth going forward. This strategy works well if you’re in a lower tax bracket in retirement than you were while working and don’t need money from your IRA to cover your living costs.
Tax Forms (2): If you converted money from a Traditional IRA to a Roth IRA you will receive two tax forms. In January, you will receive a 1099-R from your Traditional IRA. This form reports the distribution from your Traditional IRA. Make sure to give your 1099-R to your CPA.
Oftentimes after the tax filing deadline, you will receive a 5498 from your Roth IRA. This form reports your Roth contributions to the IRS. In this case, your 5498 will show the amount you converted from your Traditional IRA to your Roth IRA. This form isn’t needed to file your taxes, but it’s a good idea to keep it for your records and let your CPA know you made a Roth conversion.
401(k) Rollover – Did I roll over a 401(k) to another retirement plan?
Context: If you change jobs, you can keep your old 401(k) where it is. But don’t forget you have the option to move it to your new employer’s 401(k) or your IRA. This is called a 401(k) rollover and the distribution is tax-free.
Tax Forms (2): If you moved funds from your old 401(k) you will receive two tax forms. In January, you will receive a 1099-R from your old 401(k)-plan custodian. This form reports distributions from your old 401(k). Make sure to give your 1099-R to your CPA.
Oftentimes after the tax filing deadline, you will receive a 5498 from your new retirement plan custodian. This form reports the contributions to your new 401(k) or IRA. This form isn’t needed to file your taxes, but it’s a good idea to keep it for your records. Make sure to let your CPA know you rolled over your old 401(k) to another retirement plan so you don’t pay taxes on the distribution!
Qualified Charitable Distribution – Did I give assets from my IRA to charity?
Context: If you are at least 70.5 years of age, you can gift assets in your Traditional IRA directly to charity. This is called a Qualified Charitable Distribution (QCD). The distribution is tax-free and counts towards your required minimum distribution. A QCD may also help reduce your Social Security taxes and lower Medicare premiums.
Tax Forms (1): If you gave assets from your IRA to charity, you would receive a 1099-R in January for gifts distributed from your IRA. While this form should be given to your CPA, it does not keep track of qualified charitable distributions. To avoid overpaying taxes, make sure to let your CPA know how much of your IRA distribution was considered a tax-free charitable gift.
Charitable Contributions: Did I track my donations?
Context: Even if you don’t itemize your deductions, the IRS has a special new provision that may allow you to receive up to a $300 tax deduction for your charitable giving.
Tax Forms: If you made donations of less than $250, hold onto your receipts. If you contributed $250 or more, the charitable organization you supported should have sent you a confirmation letter. To receive a tax deduction for your charitable giving, make sure to track your contributions and send proof to your CPA.
Health Savings Account – Did I contribute to an HSA?
Context: Contributing to a Health Savings Account (HSA) is a way for high earners to get a tax deduction now and take tax-free distributions to pay for qualified medical expenses in retirement.
Tax Forms (1): If you added money to an HSA last year, you would receive Form 5498-SA in February or May for your contributions. This form isn’t needed to file your taxes, but make sure to let your CPA know if you contributed to your HSA. If you don’t report your contributions, you might miss out on a tax deduction.
Itemized Deductions – Can I deduct my advisory fees?
Context: California residents may deduct investment management and tax preparation fees on their state tax returns. Also, the IRS allows your Roth IRA fees to be paid directly from your taxable account. This is an easy way to let more tax-free money accumulate in your Roth IRA.
Tax Forms: In most instances, advisory fees will be reported on your 1099s received in January. If your CPA wants to know the advisory fees for your IRA accounts in which 1099s are generally not produced, let BWM know, and we’ll send an easy-to-read fee report.
Municipal Bonds – Are municipal bonds subject to tax?
Context: Investing in municipal bonds is a way to earn tax-free interest income. Generally, you will not pay federal taxes on interest income from municipal bonds. You will also be exempt from state taxes if you buy a municipal bond issued by your resident state.
Tax Forms (1): If your investments paid interest, you will receive a 1099-INT in February. Even though your municipal bond income may not be taxed, the IRS still requires you to report it. Remember to send a copy of your 1099-INT to your CPA.
Am I getting good advice?
As part of our service, BWM works together with our clients’ other advisors (CPAs, estate planners, bankers, insurance agents). If you do not have a team of advisors who you like and trust, please contact us and we will be happy to provide referrals to other professionals who work closely with our clients and provide great advice.
Am I planning ahead?
Send BWM copies of your most recent tax returns and we will work to uncover potential tax saving opportunities in future years. We can then work directly with your CPA to put these tax reduction strategies into action.
While we do have a CPA on our roster, BWM and its advisors are not tax professionals. This checklist is intended to help ease the tax filing process for our clients. BWM recommends consulting with a tax advisor before acting on any decisions with tax implications.