Investors: Don't let taxes tax you
Your online broker only has a week left to get your 2015 tax forms to you. You don't need to hold your breath: These documents don't have to fill you with dread.
Calculating taxes on your dividends and other investment income doesn't have to be a nightmare. Tax experts point out tax code changes for investors in 2015 are modest and largely unchanged for many investors. Surviving the season is just a matter of being prepared. Here are a few tax-time pointers for investors to keep in mind:
* Keep a lookout for your tax document. Brokers are required to postmark the consolidated 1099 documents - which show all the taxable events for 2015 - by Feb. 16. If you owned any real-estate investment trusts, or REITs, you should expect to get your documents closer to Feb. 16, according to TD Ameritrade's Web site. REITs often reclassify their distributions in January and February, so brokers like to wait to send 1099 documents for investors who own these investments to reduce the need for corrections. If you didn't own own REITs and didn't place any trades, many brokers will have mailed out forms or made them available online by the end of January.
* Consider importing investment tax information. The Internal Revenue Service made a number of changes to the ways stock gains were reported years ago, leading to more complicated 1099 document, says Bob Meighan, a CPA and vice president at TurboTax. Brokers are required to track the cost basis on stocks that were bought recently, instead of leaving that up to investors. This saves investors some calculation trouble, but makes the 1099 form more complicated as some securities are "covered" by the new rules and some are not, leaving the cost basis tracking to the investor. None of this is new - but as time goes on - it become easier to deal with. Meighan recommends users import their tax form directly from brokers into tax-preparation systems to reduce errors. "Now it's a turn key thing," he says. "It's done for you." He said 1.4 million brokers and financial institutions will now download data to TurboTax.
* Don't forget retirement savings. One of the smartest things investors can do to reduce taxes is contribute to retirement accounts, says Gina Chironis, a CPA at Clarity Wealth Management. Not only can contributions be made in many accounts until taxes are due in April, but some investors can earn a saver's credit if their adjusted gross income is below certain thresholds, she says. She urges recently retired people to contribute to a Roth IRA, even if they're over 65 years old, shield future earnings from taxes and see if they might qualify for the credit.
* Consider the desktop version of tax-prep software. Most taxpayers who use tax-preparation tools use the Web-based version. But investors might find the actual download or CD-based software to be their best bet, Meighan says. For one thing, with the software version of TurboTax that's installed on a computer - not operated online through a browser - the investor can easily flip between the data entry sheets and the Schedule D where gains and losses are recorded. The Web based product requires the investor to keep downloading the PDF of the entire tax forms to see what the actual document looks like, Meighan says. "The online tax customer is different than investors," he says. Additionally, aggressive discounting by retailers can often make the computer software slightly less expensive than the Web version.
So, keep a look out for those tax forms from your broker. And remember, it's never too late to think about next tax year. The fact the stock market is in a correction now might create interesting opportunities to sell your dogs so you can get a tax break - next year. "If you have a stock you're thinking about getting rid of, you can trigger the loss for your taxes," Chironis says
Follow Matt Krantz at Twitter @mattkrantz