With the start of a new year, many of us are anxious to get rid of anything having to do with the year past. Filing our taxes as soon as possible usually rates at the top of the todo list. I would like to offer some New Year advice, to anyone that has a brokerage account or mutual funds that are not part of an IRA, and recommend moving them from the top of the list to the bottom (or at least the middle). Doing so may help you avoid the hassle and headache of having to file an amended return.
Certain investment types, such as non-traded Real Estate Investment Trusts (REITs), mutual funds invested in REITs, tax exempt municipal bonds, or dividend paying stocks are likely to experience income reclassification and other adjustments made by the issuers after the original tax statements are mailed. Income reclassification means that some or all of the income that was distributed to investors during the year has changed tax character or tax treatment. This typically involves changing a dividend from qualified to non-qualified, or vice versa. In some cases, a company may have paid out more in distributions than it earned during the year resulting in a reclassification that causes a taxable dividend to become a non-taxable return of principle. These are just a few of the things that take place behind the scenes and depending on when the companies report, corrected 1099s can be issued as late as April 7th.
I have attached a chart that shows the expected tax form mailing dates. If you have an account that may result in a Revised 1099, you should have a footnote that reads something similar to: THIS MAY NOT BE YOUR FINAL TAX INFORMATION SUMMARY. Please heed the warning and wait for your final summary before filing your taxes.
As always, please call your financial advisor with any questions or concerns.
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