By Diana Palmieri
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Start by being aware of the accounts and money you have. I received a phone call from a client who had unreported income from his brokerage account for tax year 2009. It was under $100, but the IRS still sent him a letter and charged him a penalty. Just because you did not receive a 1099 from a bank or brokerage house does not mean it wasn’t reported. That’s where the “being aware of what accounts you have” comes in. The financial organization is not responsible to make sure you received your important tax documents. You should try to retain all year-end account statements. This way, you can just thumb through them and know what you have. Also included in this file should be trade confirmations and initial purchases of stocks, bonds, and mutual funds. This way, when you sell these assets, you will have an accurate cost basis for your accountant.
Organize important tax forms received in a file folder. These forms include W-4s from your employer; 1099s received from banks, brokerage houses, or mutual funds; mortgage interest statements; and yearly property tax statements. When you get your mail and you see “Important Tax Document Enclosed” on an envelope, stick it immediately in your taxes folder. Go through your year-end statements (organized from paragraph 1) and match up bank, brokerage, and mutual fund statements to 1099 statements. Also important to note is the accuracy of these forms. Make sure they are correct.
Keep track of your deductions religiously. I have a calendar that I carry with me at all times to document and track expenses. On the days I visit with clients, I write in the calendar space the time, the place, the miles, and the purpose. Keep the calendar with your tax documents for the tax year and place in the important tax forms folder. Other receipts such as donations to churches and other charities should be included in this folder. Most charities will send you a receipt. After making the donation, keep a copy of the invoice you sent to the charity documenting when you sent it in. Your cancelled check or credit card bill will have information as backup. You want and need to be accurate on these things.
The last thing to note are accurate cost basis calculations. This pertains to the buying and selling of stocks, bonds, and mutual funds. Make sure you have all that information handy before the trip to the accountant’s office. Keeping your buy trade confirmations or even a statement that will show the cost basis of your assets (as mentioned above) will save you a lot of time and trouble when it comes time to report gains and losses.
I have the last seven years worth of tax returns and important statements in a file. It is up to you and your comfort level as to what you want to hang onto. You can also ask your tax adviser what he/she thinks as well.
Preparing ahead of time can really make for smooth tax reporting. The more accurate and complete your tax return is, the easier it is for you and your tax adviser and to keep the IRS happy.
Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.
