It’s that time of year again: tax season. If the mere mention of tax season sends a cold chill down your spine, which as a former tax preparer I understand, it might be worth taking some time to make things a little easier on yourself in the future.
What You Need
Half the battle is pulling together all the forms you or your preparer need to complete your return, especially now that some forms are delivered electronically. Your situation and your activities dictate what you need to report to the IRS which may change from year to year. Some of the most common situations and the associated tax forms are below.
Did you take money out of an IRA, Roth IRA, 403(b), 401(k), 457, SEP or SIMPLE IRA?
Yes: You will receive a Form 1099-R to report the amount of the distribution and how much is taxable. These are typically available by the end of January.
No: If you merely own one of these accounts but did not take money out, there is no tax form needed for your return.
Did you roll over a 401(k), 403(b) or other retirement plan?
Yes: You will receive a Form 1099-R to report the amount of the distribution and how much is taxable.
Did you do a Roth conversion?
Yes: You will receive a Form 1099-R to report the amount of the distribution. Report the conversion on Form 8606 of your return.
Did you contribute money to an IRA, Roth IRA, SEP or SIMPLE IRA?
Yes: You will receive a Form 5498 to report these contributions but these forms are not typically mailed until May so you shouldn’t wait on them to file your return.
If you made a nondeductible contribution to your IRA, be sure to report it on Form 8606 of your return. This helps ensure you don’t have to pay tax on the money again when you take it out in the future.
Did you own a bank account, non-retirement investment (A.k.a. brokerage) account or shares of an individual stock?
Yes: You will receive a Form 1099-INT to report interest over $10, a 1099-DIV to report dividends, and a Form 1099-B to report sales of investments. In the case of an investment account, these forms may all come together as a consolidated 1099. These are typically available by the end of February or early March.
Did you put money into or take money out of a health savings account?
Yes: A Form 1099-SA will report distributions from an HSA. A form 5498-SA will report contributions to an HSA, which may also appear on your W-2. The 5498-SA is usually mailed in May.
Did you receive Social Security income?
Yes: You will receive a 1099-SSA to report your income and the amount you paid in Medicare premiums.
Did you withdraw money from a 529 college savings account?
You will receive a Form 1099-Q that will report the amount taken out of a 529 and a separate Form 1098-T that will report the amount of tuition paid during the year. 529 plan withdrawals won’t be taxed if they were used for qualifying education expenses.
No: If you only owned or contributed to a 529 plan during the year, there are no tax forms needed to file your return.
Did you get a state tax refund?
Yes: This will be reported on Form 1099-G.
Did you earn income?
This will be reported on Form W-2 for employees. For independent contractors, you should receive a Form 1099-NEC or a 1099-MISC for income that exceeded $600. If you are part of a partnership or S-corporation (as a worker or part owner), you will receive a Form K-1, which is often mailed in March.
Did your deductions exceed the standard deduction of $12,550 (single, married filing separate) or $25,100 (married filing joint)?
No: If you know the total of your deductions for medical expenses, state and local income tax, real estate tax, mortgage interest and charitable giving do not come close to these limits, it isn’t essential to pull together all the details for these transactions. The exception is if some of these expenses may be deductible on your state tax return.
Making It Easier
Whew! Now that you have most of what you need for this year, how do you help yourself in the future?
The fewer accounts you have, the fewer tax forms.
Are there bank accounts you can close or consolidate?
Do you have individual stocks in different places? Consider consolidating them into one brokerage account.
Do you have multiple IRAs or former employer 401(k)s that haven’t been touched since you left? Consider consolidating them into one IRA or rolling them into your current employer's retirement plan. Be sure to understand the implications of moving retirement accounts first.
Change How You Give
Tracking charitable donations for the purposes of tax deductions can be time-consuming. Qualified Charitable Distributions and Donor Advised Funds can help in some cases.
QCD: Gifts made directly from your IRA, which are only allowed if you are over age 70 and a half, aren’t reported on your return so you only need a record of them in case of an audit.
DAF: Rather than making gifts to charities directly, you may be able to use a donor-advised fund. The only deduction to report is the gift to your DAF. From there you can send the money to as many charities as you like without the record-keeping burden.
Segregate Certain Spending
If you have a side hustle or rental property, have a separate bank account and/or credit card used exclusively for these purposes. You will save yourself the hassle of hunting for specific transactions amongst all your income and spending.
Short of abolishing the 16th amendment, we can’t entirely avoid filing returns but we can make the process a little less taxing.
Please do not rely exclusively on these suggestions to prepare individual or business tax returns.