If you have investment accounts that are not inside your IRA or 401k, it is important to know that you may have taxable income that must be reported on your income tax return.
Many people think that since they don’t take money out of their investment account, there isn’t any income to be reported. Oftentimes, taxpayers have their investment income reinvested inside the account instead of withdrawing the money earned. However, the funds that are reinvested are generally still taxable in the year they are earned.
The broker or clearing house that holds your investments should send you tax documents at year end. You may not receive mailed documents. If you have elected a paperless option, it will be your responsibility to access your tax documents in your online account or ask your investment advisor for a copy.
Most brokerage firms send Consolidated 1099 forms. The consolidated form includes 1099-INT that reports interest earned (both taxable and tax-exempt), 1099-DIV that reports dividends (both ordinary and qualified), and 1099-B that reports sales of stocks, bonds, or mutual funds. There may be other, less common, forms included in the consolidated 1099 as well. All of the forms must be taken into account when filing your tax return.
It is always a good idea to schedule an appointment with your investment advisor in the latter part of the tax year to go over your anticipated investment income. If your anticipated investment income is going to trigger a tax situation you aren’t comfortable with, your advisor may be able to adjust some of your holdings to minimize the effect on your taxes.
If you have questions about Investment Income and would like help from the Tax Professionals at H&R Block, please call your local H& R Block office. In Manchester TN call 931-728-9462. H&R Block Has Your Back!