BY JASON M. MORLEY
By now, you have probably been inundated with forms, papers, labels and anything else that you know you only get one time a year. That's right, its tax time and you can really help yourself or tax preparer if you get a grasp of what you have before you. Always keep in mind that any form such as a W-2, 1099 or any other tax form you receive from someone else, realize, that the IRS get a copy too. Their wonderful computers will attempt to match up your return with their records and if there is a difference, they may come looking for you.
Here is a refresher of a few of the items you may receive or have to report come tax time.
Investment Records
I try to advise clients that every time you make a sale or purchase of investments, or I do for clients if I manage their accounts, to start at the moment of purchase to keep track of the cost basis. Keep all those confirmations from the Fund or Brokerage Company that state shares purchased or sold and the included sales charges. If you participate in a dividend reinvestment plan (for stocks or mutual funds), keep track of the dividends you receive, how many shares they purchased, and at what price. This information is necessary to help you calculate the new cost basis for your shares. The form 1099-B would be the form you will receive and will be critical in file this year's tax return accurately. Also, be aware because of new tax law changes, you may receive an amended 1099-B because of reporting companies getting their software to work with the new tax laws.
Other statements you receive will have such names as interest income (1099-INT), state tax refunds and other government payments (1099-G), dividend income (1099-DIV), Social Security earnings (1099-SSA), and distributions from IRAs, pensions, and annuities (1099-R).
Retirement accounts
If you contribute or have contributed to a retirement account, IRA, Roth IRA, 401(k), 403(b) or any other of the available plans, keep track of the contribution regardless if you get a tax deduction for the contribution or not. If you make nondeductible contributions to an IRA, make sure you declare these on IRS Form 8606 so that you don't end up paying taxes again when you eventually withdraw your funds. Your year-end account statements should show your total contribution for year and also a statement from the company. Company plans will show contribution on your W-2 and have a box checked to show your tax preparer that you made these contributions.
If you make contributions to a Roth IRA, make especially sure that you keep your contribution information. Although you don't get a tax deduction for your contribution, it's important to keep this information in a safe place, since you can remove your contributions tax and penalty-free at any time, regardless of your age or how long the Roth IRA account has been in place. If you find that you must close your Roth IRA "early," you'll need that contribution information to avoid paying taxes on that part of your distribution.
Family and Home
If you receive a check as a child rebate last summer, you need to remember to not double dip and take the full child tax credit for the year 2003. The treasury sent checks based on the information on your 2002 tax return. If you had children before 2002 and then added a little member to your family last year, the newborn will get the full credit on your return and the other won't because you received the check for them over the summer.
If you own a home, rental, or investment property, remember to hang onto that year-end mortgage interest statement (1098) that you'll receive from your lender. And keep records of improvements made to your home. These can be added to your basis price, decreasing your taxable gain when you sell the home.
Additionally, keep records of expenses related to selling your home. They can also be deducted from your capital gains. Many people will tell you that this is no longer required because of the capital-gain exclusion regarding the sale of your home. The tax laws always change so if the laws do change and this is no longer the case, the IRS will expect, as they should, for you to produce info to back up your taxes owed. So keeping these records is always a good idea.
Keep records of expenses for professional help, such as tax preparers and advisors, legal counsel, etc. In fact, keep records (both invoices and cancelled checks) of any and all deductible expenses... just to be on the safe side.
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Jason M. Morley, CPA/PFS, CFP is founding principal of Morley Financial Planning, a Fee-Only financial planning and Registered Investment Advisory firm headquartered on Long Island in Suffolk County New York. The firm specializes in providing financial planning and investment advice to people from all walks of life. For more information you can contact Jason at 631-454-9444 or visit his Web site at
MorleyFinancial.com