It’s tax time. Imagine that you are in your tax professional’s shoes and your entire client base delivers you thousands of unorganized documents in folders and boxes with one common request … make me pay as little in taxes as possible.
We at Boyer & Corporon Wealth Management are not tax professionals, nor do we prepare tax returns or offer tax advice. However, each year we attempt to review each of our client’s tax return for information which helps us in portfolio management and financial planning decisions. We also check for accuracy and completeness of the tax document based on our knowledge of our client’s personal and financial situation. Below are three areas which can be confusing or overlooked:
Fees to your Financial Professionals
You might be able to deduct both investment management fees and tax preparation fees.
- Investment management fees are found on Schwab’s 1099 Composite document in the section called “Summary of Fees & Expenses”. It’s easy to miss this deduction due to the length of the 1099 Composites (many are 60+ pages) and the fact that this information is near the end.
- Tax preparation fees are deductible based on the year which they are paid. This means that on your 2012 tax return you may be deducting the fee you paid in 2012 for preparation of your 2011 tax return.
Accrued Interest Paid on Bond Purchases
Most bonds pay the bondholder interest every six months. If a bond is purchased between interest payments, the buyer must pay interest due to the seller. This interest is taxable to the seller. While this is true, chances are the buyer’s 1099 – INT will reflect that the buyer received ALL of the interest. (Never mind that they had to pay a portion of it to the seller!) A subtraction of the accrued interest paid on bond purchases must be made on the tax return. The amount of accrued interest paid on bond purchases is located in the 1099 Composite but, similar to investment management fees, is buried deep within a very lengthy report. Your tax professional should know how to find this information.
Mortgage Backed Securities
Frequently, we receive requests for the cost basis associated with mortgage-backed security transactions. Because we are familiar with these types of documents, these are easy questions for us to address. Here’s how this works. If you own a mortgage-backed security, you receive a portion of your original investment back each month (principal). Investment custodians (Schwab) report this on the 1099 Composite as proceeds with missing cost basis. When reporting this return of principal, the cost basis should equal the payment amount, resulting in no gain or loss from the transaction.
Be patient in completing and filing your tax returns. Our team of Wealth Advisors is available to assist you and/or your tax professional in any way possible during this busy and stressful season.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.