Time to gather your investment tax forms

Published 4:44 pm Friday, February 3, 2017

By Emily Yent

The holidays are now a month behind us, which means it’s about time for another season: Tax Season. While you may not find it particularly festive, you can get through this season with a minimum of stress – if you’re organized. That means, among other things, you’ll need to gather the correct forms in one place. And right about now, you should be receiving many of the forms you’ll need – specifically, those tax forms related to your investments.

Here are some of the key forms to watch for:

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• 1099-B – This form reports capital gains. A capital gain is an increase in the value of an investment over the initial purchase price. Short-term capital gains, on investments you’ve held for one year or less, are taxed at your ordinary income tax rate, while long-term capital gains, on investments you’ve held for more than one year, are taxed at 0%, 15% or 20%, depending on income. (Keep in mind that these figures are for the 2016 tax year.)

• 1099-DIV – This form reports the dividends you received from companies in which you invested. For most dividends, the tax rate is the same as it is for capital gains – 0%, 15% and 20%.

• 1099-INT – A 1099-INT reports the interest you received from bonds or cash instruments. Typically, most types of interest are taxed at your ordinary tax rate.

• 1099-R – A 1099-R form reports withdrawals from retirement accounts, such as your IRA and 401(k), along with payments you received from pensions and annuities.

• 1099-MISC – This form reports, among other items, payments you might have received in lieu of dividends. 1099-MISC also reports earnings you might have received as an independent contractor.

• 1099-Q – If you contributed to a 529 plan or a Coverdell Education Savings Account (ESA), you may receive Form 1099-Q in each year you make withdrawals to pay school expenses of the beneficiary. However, the earnings in a 529 plan or Coverdell ESA grow tax free, and withdrawals are not taxable, as long as the money is used to pay for qualified higher education expenses.

Whether you do your taxes yourself or use a tax professional, you’ll want to become familiar with these forms. Not only are they necessary for filing your taxes, but they can also tell you something about how you invest. To cite one example, if you’re seeing a lot of taxes related to short-term capital gains – which are taxed at your personal tax rate, rather than the more favorable long-term rate – you may be doing too much trading. You might want to consider moving toward a strategy in which you buy quality investments and hold them for the long term.

Here’s something else to look at: the taxes resulting from your traditional IRA and 401(k) withdrawals. Could you possibly withdraw less from these accounts so that your taxes will be lower? Once you’re 70½, you have to take at least a minimum amount, but other than that, you control the withdrawals – and you might benefit, taxwise, by taking out only what you truly need.

So, gather up those 1099 forms for your tax returns – and for your own education as an investor.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.