Regardless of whether you use personal finance software, you should take advantage of any help you get from your tax preparer, when it comes to being organized. Most firms will provide you with a sheet that you can fill out in advance. On this organizer, you can summarize your personal information for the year. Make sure that you’ve included everything and have put down the numbers correctly. Using last year’s return as a guide can assist you in assembling the information you need.
Besides gathering data and filling out your tax preparer’s organizer, there are other steps you should take before getting together. Suppose, for example, you sold some stocks last year. Go over your records in order to figure out when you purchased those shares and how much you paid. Do the same if you made several mutual fund switches last year.
Many people do not realize that any mutual fund transaction is a reportable sale. That’s true even if you moved money between funds in the same “family.”
Suppose, for example, you switched some money from one Fidelity fund to another. Unless those funds are held in a tax-deferred retirement plan, that would be a taxable transaction.
Most mutual fund companies provide purchase price information but many investors discard those schedules before they file their tax returns. Without these records, investors may have a hard time putting together the information needed. Often, they file their returns without reporting the mutual fund transactions.
If those mutual fund trades aren’t reported, the IRS will send a letter, asking for information, and your entire tax return may be examined. Therefore, it pays to make sure you report the results of all mutual fund trades on your return.
