With tax reporting season upon us, the Litman Gregory Wealth Management team is here to support our clients in gathering pertinent information that will help prepare for a smooth tax filing process. Whether finalizing your tax return in April, planning to file an extended return in October, or working to complete estimated tax payments, we share some key reminders and tips below to keep in mind.
Estimated Tax Payments & Filing Deadlines
If you owe estimated taxes, be sure to review your income tax liability and make any necessary payments on time.
- Estimated tax filing deadlines for the current tax year begin on April 15, then continue June 15, September 15, and into January 15 of the next calendar year.
- The tax filing deadline is typically April 15 (or closest business day), but you and your tax advisor may decide to “extend” your return filing to the extension deadline of October 15. It is important to note that even if you file an extension, you may still have tax payments due by the April filing deadline in addition to any estimated tax payments due.
Custodian Tax Form 1099
For the most accurate reporting on your portfolio income and dividends, always refer to your official tax documents issued by your custodian.
- Your brokerage firms will provide you with tax Form 1099 which includes details on your dividends, interest, gain distributions, and realized capital gains/losses.
- These tax reports are typically available by the end of February, and we also keep an eye out for them so we can save copies for our clients and their tax advisors. Clients should review them carefully with their tax professional.
Understanding Dividend Classification
The categorization of portfolio dividends as “qualified” or “non-qualified” is important to report correctly, as each category has a distinct tax profile. However, the accurate assignment of your portfolio dividends into these categories may not be ready until your final Form 1099 is issued.
- This means you should know that information about dividends and interest in any preliminary reporting on your portfolio could differ from your final tax Form 1099.
- As we support our clients and their tax advisors in planning ahead for potential tax liability, we are mindful of this issue when reviewing investment income with them.
- We encourage clients to rely on official tax documents when completing their tax returns.
Treasury Securities & Reporting State Tax-Free Income
If you received income from U.S. Treasury securities, even through a mutual fund or ETF investment, your brokerage firm may provide “supplemental” tax information to support tax reporting on this interest.
- Treasury bond interest is considered free from state income liability, so it’s important that your tax advisor knows and can report how much of your portfolio income may have come from treasury securities.
- Your tax Form 1099 may provide some additional details about treasury interest, and if needed we are here to support our clients to help provide correct interest information to be used in the preparation of their tax return. Clients should work with their tax advisor to ensure accurate reporting.
Retirement Account Distributions & Tax Reporting
Withdrawals from IRAs and other tax-deferred retirement accounts are often reportable as taxable income and can therefore have tax implications.
- If you made withdrawals from an IRA or retirement plan, or if you completed a conversion from an IRA to a Roth IRA during the tax year, your brokerage firm will send you tax Form 1099-R reflecting the total distribution amount.
- For your tax advisor to know how much of the distribution amount on the 1099-R is truly taxable, they will need further information about the profile of your withdrawal(s). We are here to help clients provide information to tax advisors to support the correct tax reporting on withdrawals.
Charitable Contributions & Tax Deductions
It’s important to keep records of charitable gifts that you made during the year, whether by delivery of securities, cash, or from an IRA account, to ensure proper reporting of potential deductions.
- For charitable gifts that we help our clients process, we provide them with a gift confirmation letter that can be shared with their tax advisor to ensure the gift is accounted for correctly on their tax return.
- If you are over age 70½ and donated to a charity from your IRA account, this “qualified charitable distribution” (QCD) will be reported on the Form 1099-R like any other withdrawal, so a gift confirmation letter can provide helpful documentation for your tax advisor so your QCD amount can be reported as non-taxable.
Alternative Investments & Special Tax Forms
Private investments often provide tax reporting in the form of a Schedule K-1, although some will produce a Form 1099. If you have a private alternative investment, you will want to collect these tax reports from the investment issuer.
- If you expect to receive a Schedule K-1, you may also want to prepare for the possibility of an extended tax return (to October 15), as these tax reports are often not ready in time for an April 15 filing date.
- When reviewing tax information for your private investments, it’s important to also review any supplemental reports that provide estimated income details or tax form delivery schedules.
- For private alternative investments introduced by Litman Gregory Wealth Management, we coordinate with investment issuers to obtain tax forms (K-1 or 1099) and share them with clients for their tax reporting needs..
Final Thoughts
Staying informed about tax requirements and deadlines can help you avoid surprises and streamline the tax filing experience. We encourage you to be proactive in collecting needed information, to review your tax documents carefully, and consult your tax professional for personalized guidance. We are also here to help our clients stay ahead of deadlines to keep their financial reporting on track.
If you have any questions or need assistance obtaining investment-related documents, don’t hesitate to reach out to your advisor or our client services team.
Here’s to a stress-free tax season!