Prepare for a tax return crunch. The IRS has already announced that the government’s shutdown in October will delay tax filing season by a week or two.
Strategy: If you use a pro to handle your return, make things easier with these five steps.1. Get your house in order. Don’t simply dump a pile of receipts, credit card slips and other papers on your CPA’s desk. Arrange a meeting soon to cover all the bases and provide all the relevant information and documentation in a neat and logical order.
2. Don’t assume assumptions. Give your tax pro a refresher course on your situation and any special quirks. Even more important: Check to see if items carried over from 2012—capital losses, passive activity losses, net operating losses, etc.—will be allowed on your 2013 return.
3. Report securities transactions. This info is often vital to a return. Provide your tax pro with all 1099s. (They should be sent by Jan. 31.) Remember that transferring shares within the same family of mutual funds is a taxable event.
4. Support basis adjustments. If you sold securities in 2013, you owe tax on the difference between your sales price and your basis. Make sure that the adjusted basis you use for calculations is properly documented. Otherwise, you might overpay your tax bill.
If you’re not careful, you could pay a “double tax” on mutual fund dividends and capital gains that have been automatically invested. Reason: You have already reported those amounts.
Example: In 2013, you sold mutual fund shares acquired at $10,000 for $15,000. Over time, you’ve paid $2,000 in tax on the reinvested dividends and capital gains, so your adjusted basis is $12,000 ($10,000 + $2,000). Therefore, your taxable gain is only $3,000 ($15,000 – $12,000), not $5,000 ($15,000 – $10,000).
Note that mutual fund companies are generally required to report the adjusted basis on certain sales of shares acquired after 2011 to both investors and the IRS.5. Combine business with personal. Usually, it’s not a good idea. However, if you own a business, especially a pass-through entity like a partnership or S corporation, it may be easier to have the same firm handle both your personal and business returns. One is often dependent on the other.
Tip: The filing deadline for 2013 corporate tax returns is March 15, 2014.