5 Common Investment Tax Filing Errors

Many a tax prep conversation starts with paperwork spread over the kitchen table, combining W2 forms, compiling 1099s, tediously downloading investment filings from multiples websites, and making sure you haven’t forgotten anything. It can be an anxiety-filled process, as the stakes are high: you don’t want to over pay, and you don’t want to make a mistake. Our friends at Baum Private Wealth Advisors at Janney Montgomery Scott LLC have offered 5 common investment filing tax errors that you should look out for this year when thinking about your 2021 tax filings.

5 Common Investment Tax Filing Errors

Written by Michael Repak January 5, 2022

Senior Estate Planner Mike Repak from Janney Montgomery Scott explains some common tax filing errors and how to avoid them.

1. Paying more than you should on investments that you sold

A common mistake investors make is to pay too much in taxes because they did not know their original cost basis. Investment companies, including Janney, are now required by the IRS to calculate cost basis, but that wasn’t always the case. If you’ve held shares of a stock or mutual fund for 10–15 years or more, you may be responsible for calculating the cost of the shares you purchased. The cost-basis is used to determine your gain on the shares when you sell them. Calculating cost basis becomes even trickier when you add in multiple purchases of shares, like when dividends are reinvested. We suggest that you consult a tax advisor to assist you with your cost basis calculation when it is not provided by your investment firm. This can help you avoid paying too much in taxes on sales—particularly when they involve large sums of money.

2. Overlooking taxes paid on retirement distributions

It’s very common to elect to have taxes withheld once you start taking distributions from your IRAs and other retirement plans when you retire. It’s easy to forget that these taxes have already been withheld on your behalf and sent to the IRS by Janney or your other investment providers. It’s important to check the IRS form 1099-R that you receive from each of your investment providers so that you can be fully informed of the taxes already withheld when filing your taxes.

3. Filing your return too soon

No one wants to wait to get their refund. After all, it is your money. But filing too early can lead to additional filing costs for amended returns or penalties for missed income. It is very common for investments to issue amended 1099s. It’s not always your provider’s fault. Frequently, Real Estate Investment Trusts (REITS) and Limited Liability Partnerships (LLPs) reclassify dividend and interest paid to investors. That’s the most common reason why amended tax forms are required. If you have received amended 1099s in the past or you hold investments that have reclassified distributions in the past, you should consider waiting to file your taxes until closer to the tax filing deadline.

4. Overlooking tax law changes

There are significant tax law changes almost every year that impact investments. It’s very difficult for the public to keep up-to-date on all the changes. One way to help ensure that you catch all the changes is to consult with a tax professional. You should make sure to read all of the tax communications sent from Janney and your other investment providers. Janney summarizes some of the important tax changes related to investments on our website at Janney.com\taxes. You can also visit the IRS’s website for more information.

5. Not double-checking your math

Online tax preparation sites have become very easy to use. They also check for common errors, omissions, and math errors. However, there is no substitute for double-checking your math and data entry. Basic math mistakes are continually cited on the IRS’s website as one of the most common mistakes. Paper or electronic—take the time to look at the summaries of your income and deductions, and check to make sure everything adds up before you file.

Contact Baum Private Wealth Advisors today at 412-562-8120 or www.BaumPrivateWealthAdvisors.com to discuss any questions you may have. By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.

DISCLOSURES:

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

WORKING WITH JANNEY

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile. When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.