TAX TIP No. 17
Be on the lookout for these tax statements
January is not your mail carrier's favorite time of the year.
Every U.S. Postal Service delivery bag is overloaded with statements from employers, banks, stockbrokers, and other institutions and agencies that were involved in taxpayers' financial lives last year. Each of these groups has, by law, until Jan. 31 (or the next business day when that date falls on a holiday or, as it does in 2009, a weekend) to get their annual tax statements in the mail to taxpayers.
Common income, deduction statements
Most taxpayers depend on the same basic data to file returns. If you work for someone else, the IRS expects you, and the agency, to get a statement detailing that income. The data are slightly different, depending on whether you get paid a salary or do contract work, but there's a form for either case.
This is the key form, and you need one from each employer you worked for during the past year. Your W-2 shows how much money you made, how much income tax was withheld, Social Security and Medicare taxes paid, and any benefit contributions -- retirement plans, medical accounts and child care reimbursement plans.
For most homeowners, mortgage interest is tax-deductible, and this document will tell you how much you paid last year. Your lender is required to send you one of these forms if you paid at least $600 interest. Actually, your mortgage company probably won't send you an official Internal Revenue Service form, but a document of its own design that contains the same data. In addition to the mortgage interest, other information often found on this statement includes amounts paid toward points to get the loan and escrow disbursements for real estate taxes (also deductible) and property insurance (not deductible).
Are you paying back a student loan? The interest on your educational debt is reported on this form; your lender must send you one if the interest tally is at least $600. You may be able to deduct your student loan interest and possibly other loan-related amounts, such as origination fees and capitalized interest. To figure the deductible portion of the interest amount found here, use the work sheet in your Form 1040 or Form 1040A instructions.
If you earned more than $10 in interest on a bank account or a certificate of deposit, you'll get one of these forms for each account. Don't dismiss this statement if you reinvested the interest. Tax law says you received the income even if you didn't actually have it in your hand, and reinvested earnings are still taxable income. 1099-INT statements also are issued to people who cashed in savings bonds.
Earnings from individual stocks and mutual funds are reported on Form 1099-DIV. This will show dividends and capital gains distributed over $10. As with reinvested interest, if you used the dividends or distributions to buy additional shares of the stock or mutual fund, you still have to pay taxes.
Don't be confused by capital gain distributions if you didn't sell any of your stock or fund shares or if your investment lost value. Capital gain distributions are not connected to these considerations. Rather, these distributions come when a portfolio manager sells securities at a profit during the tax year. This profit then is passed on as distributions (usually at the end of the year) to all the individual fund shareholders proportionate to the amount of shares they own. Unfortunately, this means you may have to pay taxes regardless of whether your investment gained or lost in overall value.
|-- Updated: Jan. 28, 2009