The news continues about the new tax law effective Jan. 1 (the changes in the law will affect taxes you file for April 2019).
But one thing this tax act will not change is the flow of mail that shows up early in the year. Any day now those ‘important tax documents’ will begin arriving.
It is important that you store these documents in a secure place as they contain very sensitive and personally identifiable information. You also want to easily locate them when needed at return preparation time. If you use a preparation firm, they likely send you some sort of paper or electronic organizer to help you get everything together. Store these docs with that organizer in either paper or electronic format ... or both, for the belt and suspenders types.
The documents are due to be received by you before Jan. 31. Some will arrive early and some will be late, but compare this year’s to last year’s to be sure that you’ve got everything.
These amounts are reported to both the federal and state taxing authorities, so they indeed already know what should be showing up on your tax returns. In fact, omitting or erroneously reporting the information reported on these forms is the number one reason for further correspondence from the IRS about your return. Consistent inaccuracies may lead to an audit.
If you have brokerage or other investment accounts, you’ve probably experienced some frustrating times over the past few years with multiple 1099s. Some firms had to issue a few rounds of corrected 1099s over the last few years due to industrywide systemic reporting problems. I’m not sure what will happen this season, but use the information from any corrected 1099s that you may receive when you file. If you file early, this may require filing an amended return.
For the self-employed crowd, the other side of this equation may apply to you. If you’ve paid people that are not employees, you may be required to issue 1099s to those recipients. Not issuing 1099s when you should have can result in penalties and perhaps a challenge to the deduction.
Be on the lookout for small accounts that you may have neglected. In some cases, institutions are allowed to skip the paper 1099 requirement for smaller amounts. It may be from a bank or brokerage account and you may have to call the institution or log onto their website to get the information that you’ll need to accurately file.
While gathering this year’s information, be thinking about what you’d like to see differently next year.
The answers will be different for everyone. Some of you may be looking to increase your income while others may be looking to reduce their taxable income. The best time to think about how to reduce your taxes in 2018 is now, when you are gathering the information from last year.