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Rollover Reminders for Tax Day 2021


Remember when April 15 was the dreaded “Tax Day” in America? That was way back in pre-COVID-19 America (2019). Tax deadlines were extended into summer for the COVID-19 chaotic year 2020. Although COVID-19 remains with us, it appears that April 15th will again be the dreaded deadline for filing individual Tax Returns or an Automatic Extension to October 15, and (in either case) paying up any tax due for your 2020 Tax Year on or before 4/15.

Preparing for Tax Day, both financially and emotionally, requires planning, organization, and knowledge. We have already seen the first 2020 tax documents arrive by mail. Forms 1099, which notify IRS that you received income needed to assess your tax status, are showing up in mailboxes across the fruited plain. Keep them, scan or photograph them as you are able, and file them in your “Tax Day” paper holder.

Today we are looking at investment portfolios that may have changed custodians during 2020, or in some cases, account changes at the same custodian. Changes of this nature generally trigger Tax Forms that require attention and understanding. Otherwise, the taxpayer may be subject to being overcharged, or worse, singled out by IRS for explanations. Knowing what to look for will alleviate potential problems.

Following are some specific dates to keep in mind (from our custodian, TD Ameritrade). All of these dates refer to reporting income online, and all refer to 2021. Your financial institutions may have slightly differing dates, but the documents are universal. Hard copy mailings of these forms will usually arrive a little later.

•    January 15 – Forms 1099-R, 1099-Q, 1099-C (individual income)

•    February 22 – Forms 480.6A and 480.6B (from Puerto Rico)

•    March 3 – REMIC/WHFIT statements (certain real estate)

•    March 4 – Form 1042-S (paid to foreign citizens)

•    March 15 – Forms K-1 (income from pass-through entities)

•    March 19 – Form 2439 (from some business entities)

All of the above are routine “reminders” that income has been reported, and if you receive any of these forms, that income must be included in your Tax Return. Massive IRS computer systems will match these income reports to individual returns and will flag unreported or under-reported income.

So much for the easy part. Complications abound, as some deadlines are flexible. Notable is the form K-1, generally due by March 15, but extended as far out as September 15 for entities filing automatic extensions to their own Returns.

Knowing that you will eventually receive one or more Forms K-1 can save the time, expense, and irritation of filing an amended Form 1040-X later in the year.

Another potential tax reporting problem involves Qualified Retirement Accounts, including the IRA, 401(k), 403(b), etc. When these accounts are rolled into other accounts, usually Traditional IRAs, 1099 will be issued to the owner for the withdrawal. However, when the accounts are rolled into Qualified Accounts, rolled over funds are not taxable.

Proving the Qualified nature of the rollover is the responsibility of the account owner. This is done with a Form 5498, which supports the funds having been rolled over in a timely fashion, rendering the transaction tax-free; hence the term “tax-free rollover.” Here’s the rub – Form 5498 is not required to be sent until May 31, long after the Tax Filing Deadline.

We should note that Form 5498 does not have to be filed with your 1040, but you must be sure to get it and save it for proof of the rollover, should you be questioned or examined by the IRS.

We believe that the most convenient, thorough, and hassle-free procedure is to file for an automatic extension of your filing date using Form 4868. Only if you are expecting a large refund does it make sense to file early or on time. That situation can be avoided through careful planning of your withholding throughout the year. We can help.

Van Wie Financial is not a tax preparer, and we do not render tax advice. We are qualified tax planners and work closely with our clients’ tax professionals in the development of individual tax strategies.

Van Wie Financial is fee-only.  For a reason.