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It’s easy to miss necessary tax forms as more companies go paperless, but with mounting challenges at the IRS, filing an inaccurate tax return will only lead to delays, the agency says.
It’s critical to have all the required forms for a complete and error-free return, the IRS said in a statement. Filing an accurate, online return with direct deposit may avoid processing delays, stalled refunds and future IRS notices.
And you may miss tax-savings opportunities with incomplete information, said certified financial planner Edward Jastrem, director of financial planning at Heritage Financial Services in Westwood, Massachusetts.
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Before filing your return, you’ll need forms for each source of income. These may include a W-2 from your job, 1099-NEC forms for contract work and 1099-G for unemployment income. You can double-check these by pulling a free IRS transcript.
As for write-offs, forms may include 1098 for mortgage interest, 5498 for individual retirement account deposits and 5498-SA for health savings account contributions, among others.
But you may skip some of the lesser-known forms, resulting in an incomplete return, tax experts say.
Investment income
Filers often miss tax forms for investment income, said Ryan Marshall, a CFP and partner at ELA Financial Group in Wyckoff, New Jersey.
The most frequent omissions are 1099-B for capital gains and losses and 1099-DIV for dividends and distributions, he said.
“There is a common misconception that if a client didn’t physically receive payment from their investment, then it is not taxable,” Marshall said, suggesting filers always check their accounts for documents and review past returns.
There is a common misconception that if a client didn’t physically receive payment from their investment, then it is not taxable.
Ryan Marshall
Partner at ELA Financial Group
Nondeductible IRA contributions
Another continual mistake is skipping Form 8606 for nondeductible IRA contributions, said Marianela Collado, a CFP and CPA at Tobias Financial Advisors in Plantation, Florida.
It’s an issue because you may need this paperwork to verify contributions for so-called Roth conversions, a move that bypasses the income limits for Roth IRA deposits, allowing future tax-free growth. Without proof of the original deposits, you may get taxed on the same income twice.
Foreign bank accounts
And you must be diligent with the Report of Foreign Bank and Financial Accounts, known as FBAR, on FinCEN Form 114, Collado said, applying to bank accounts outside of the U.S. with a balance of $10,000 or more during any day of the calendar year.
“This one carries criminal implications if you fail to file or worse, fail to report the income associated with that foreign bank account,” she warned.
Qualified charitable distributions
Investors age 70½ and older may use qualified charitable distributions, or QCDs, to donate up to $100,000 per year from an IRA, allowing the retiree to reduce adjusted gross income.
However, the move often triggers a mistake since brokerages don’t separate the QCD transfer on Form 1099-R, which reports retirement plan distributions, said Jastrem from Heritage Financial Services.
For example, if you withdrew $50,000 from an IRA in 2021 and $20,000 was for the QCD, your 1099-R will show $50,000 for distributions, even though only $30,000 is taxable income.
“If the individual or tax preparer does not make a manual adjustment and record the QCD, the entire IRA distribution could be reported as taxable,” he said.
Filing extension
Another frequent error is not filing for an extension with Form 4868 if you can’t make the deadline on April 18, Collado from Tobias Financial Advisors said. The failure to file penalty is 5% of unpaid taxes for each month your return is late, up to 25% of your balance.
