Questions & Answers

This week’s guest is Aubrey Ramey, Clarify Wealth’s Chief Operations Officer. She has been in the financial industry for over 20 years. She joins us today to share her thoughts on taxes, being that it is a timely topic to begin the New Year.

What is the most common question you get regarding taxes from clients?

Usually the questions are less about what information is on the form, and more general about what forms are expected and when they should arrive. Many of our clients use a professional tax preparer so they are more worried about making sure they get everything to their taxperson on time and aren’t missing anything they need. Many people are used to receiving their personal filing documents, like their W-2s, quickly and might not realize that some investment account documents take longer to generate. So timing of when to expect these forms is a big one, but so is knowing what documents to expect from each account. In this case, I usually tell clients to review the documents they received the prior year, and look for the same documents, assuming circumstances or investments haven’t changed.

So when should an investor expect to receive their account documents for tax reporting?

Well, it really comes down to the types of investments you have. If you have a non-retirement account that generates a 1099 tax form, generally those will be mailed by January 31st, so you can probably expect to receive them the first week of February. But there are exceptions to that date. For example, if one or more of your accounts holds investments that are subject to income reclassification, these accounts may not mail their 1099 tax forms until mid-February or early March. Investments like Unit Investment Trusts, REITS or mortgage backed securities would fall into this category, just to name a few. The delay in mailing 1099s is to try to cut down on the number of corrected 1099s that have to be mailed out later. Don’t panic! If you have an investment in your accounts that could be subject to reclassification, you still have time to file before the deadline in April.

How does an investor know what types of tax forms to expect?

Like I mentioned before, if you haven’t done anything differently in your accounts than in prior years, you should probably be looking to receive the same forms for the account as in prior years. The most common types of forms you should be expecting are likely 1099s. These forms are the most common way for investment companies to report income, dividends and withdrawals. Specifically, if you’re taking withdrawals from retirement accounts or annuities, you will receive a 1099-R. There are also 1099-DIV and 1099-INT forms which report the amount of income an investment earns throughout the year. If you sold any stocks or mutual funds during the previous year, you should expect to receive a 1099-B which reports proceeds from those sales. If your accounts hold limited partnerships, they generate their income reporting on a form known as a K-1. These are typically mailed later than the 1099 deadline, and many clients report not receiving them until March. While most investors don’t have investments that generate a K-1, we still see them from time to time with older investment types.

Is there anything the investor needs to track individually, or does the tax form provide everything an accountant or tax professional needs to file an income tax return?

Nowadays, most advisors and investment firms will track your information for you. One thing an investor can do, though, is keep track of their cost basis information if they purchase individual company stocks. This becomes especially important in a non-retirement account. Your cost basis information can be as simple as the price you paid per share for the purchase, the date when you purchased, and how many shares you bought. You will need this information when you decide to sell the stock in the future, and up until recently many advisors and investment firms were not required to keep track of this for you. I get cost basis questions every year from clients and tax preparers, and if you’re working with an advisor, you hopefully had this conversation prior to even placing the trade. For stocks that you’ve held for a long time, it’s your responsibility to know how much you paid for it and when you bought it. Now that firms use electronic databases, we will usually have cost basis information for something you’ve purchased in the past 10 years, however older holdings are usually the ones where you might need to do some research.

What are some tax considerations as we approach the tax filing deadline in April?

The biggest consideration is whether or not you want to make a contribution to an IRA or a Roth IRA. A lot of investors don’t realize you can make these up until the tax filing deadline and have the contribution count for the previous year, meaning you have until April 2019 to put money into these types of accounts for 2018. While conversions from a Traditional IRA to Roth IRA must be done before December 31st, you can still put new money into either account up until the tax filing deadline, if you meet eligibility requirements.

What are some of the tax changes for 2018 that people will be mindful of when they file this April?

As many people are aware, there was a large tax reform bill passed beginning last year. There were some important changes that were introduced which are going to impact a lot of taxpayers. There was a fairly significant change to the tax brackets. For example, clients who were in the highest bracket prior to reform, the 39.6% bracket, will see a reduced tax bracket to 37%. And for all the brackets, they’ve widened the income ranges, which could potentially lower the tax bracket for a lot of clients. Another big change was the elimination of personal exemptions in favor of an increase in the standard deduction, up to $24,000 for a married couple and $12,000 for single filers. Depending on your family size and how much you previously were able to itemize, this change could result in a large change to your taxable income. There was also an increase to the child tax credit, which provides a potentially refundable credit to earners with children. The income limits of who is eligible to take the credit was also increased to include higher earners, meaning those who have children might benefit more from this credit than they have in the past.

They’ve recently announced some changes to the tax law for the upcoming year. What are some of the big changes to the tax laws in 2019?

Starting in 2019, you can put away up to $19,000 into your 401k, and workers over age 50 can put an additional $6,000 into their account as a catch up contribution. In addition, Traditional IRA and Roth IRA contribution limits were increased to $6,000. For an IRA account, this is the first increase in several years, which could provide a bonus to people who are looking to put as much as possible away for retirement. These are important numbers to be aware of as you begin your planning for this year.

Thanks very much for your time today Aubrey. My last question, being that you’re such a fan of the holidays…. How many days out of the year do you wear Christmas socks?

Probably 30 days. I wear Christmas socks for the entire month of December. Well, honestly they carry over into January. At that point they are no longer Christmas socks, they transition into winter socks. :)


This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. Clarify Wealth Management and LPL Financial do not provide legal advice or services. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.