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Getting in form for filing

It is that season when year-end documents can overwhelm you, and you wonder what to stash in a folder (or basket for some of us) until tax time. To provide some clarity and to better prepare you for tax preparation, here is a guide to some of the forms you may find as you sort your mail.

Investment Income

Outside of a qualified retirement account, such as an IRA, any income earned on an investment is subject to tax.

Form 1099-DIV.  The most common investment income is from dividends. Your dividend income can be categorized as “Ordinary,” which is taxed as ordinary income, similar to earnings from employment. Or the income can be “Qualified,” which is taxed at your capital gains tax rate. The mutual fund company or corporation issuing the dividend will categorize how your dividend income should be reported. This information can take awhile for institutions to compute, so you will likely have to wait for this document until the end of February.

Landaas & Company provides this article for information only. Please consult a tax professional for advice.

Form 1099-INT. Interest earned on bonds or cash-type vehicles such as savings accounts or money market funds is taxed as ordinary income and is reported on this form. This form will usually arrive in late January from your bank and late February from an investment company. Usually reported on the 1099-INT – although in some cases on the 1099-DIV – would be any dividends earned from municipal bonds or municipal bond funds. Such income is usually but not always tax-free federally. Municipal bonds generally are subject to state income tax but some exemptions and exceptions may apply.

Investment Proceeds

Anytime you sell a security outside of a qualified account, you must report either the gain or loss to the Internal Revenue Service.

Form 1099-B. The institution that held the security you sold will report the sale as “Gross Proceeds” on this document, which you should expect to receive before the end of February.

For securities purchased after Jan. 1, 2011, clearing firms must report the cost basis for the investments sold. Otherwise, you will need to collect and report your cost basis, which includes the purchase price of the security, any reinvested dividends and any additional purchases or sales. In most cases, the institution that purchased the security for you will have these records. (As a service to clients, Landaas & Company attempts to assist with cost basis reporting as much as possible.)

IRA Distributions

Any distribution from an Individual Retirement Arrangement (IRA) or other qualified plan that is not put back into an IRA within 60 days must be reported to the IRS and is subject to ordinary income tax.

Form 1099-R. IRA distributions are reported on this form, which also should show how much of the distribution you may have withheld for federal and state income taxes. Also, any distributions from a Roth IRA will be reported on a 1099-R, even though those funds are not subject to income tax. Typically, you should expect to have this form by the end of January.

You also can expect a Form 1099-R if you completed a non-taxable 401(k) rollover into another qualified retirement plan or an IRA.  The IRS requires you to document that the amount of the distribution reported on your 1099-R matches the amount of the contribution reported on your Form 5498.

IRA Contributions

Form 5498. Any contributions to traditional or Roth IRAs will be reported to the IRS on this form. But because contributions for 2011 are allowed up until the tax filing deadline in 2012, 5498s are not sent until after April. That means you need to recall any IRA contributions you made last year and be sure they’re reported. Once you receive your 5498 – probably in mid-May – file it away with copies of your completed tax return.

More information
“Investment Income and Expenses,” IRS Publication 550
“Tax Guide for Seniors,” IRS Publication 554
(initially posted Jan. 26, 2012, updated Jan. 24, 2013)

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