Monday, January 24, 2011


I certainly don’t think you should wait till the last minute to prepare your tax return. I also don’t think you should rush to be among the first taxpayers of the year to have your taxes done.

For me the “tax filing season” officially begins on February 1st. I tell my clients not to come to me until then, and rarely prepare a tax return before the 1st of February unless both the client and I are sure that he/she has received everything necessary to properly prepare the return.

The reason I chose February 1st is because, under federal law, all W-2s, 1099s and 1098s are required to be furnished to taxpayers by January 31st (unless the 31st falls on a week-end). The instructions for these forms state that the “furnish” requirement will be met if the form is properly addressed and mailed on January 31st.

Plus, most banks, brokerages, mortgage companies, colleges and the like are not able to send out 1099s and 1098s until the end of the month because of the volume involved.

Several years ago, when I still had a storefront office open to the public, a long-time client came in on the morning of February 1st to have his return prepared. He had received all the 1099s for interest and dividends for all accounts and investments as well as the 1099s for Social Security and pensions. Upon reviewing the “stuff” he presented to me I found that he had a form for every source of income he had reported on the previous year’s return. He told me he had not sold any stock during the year, and that there had been no spin-offs, mergers or “cash in lieu” for fractional shares. So I prepared the federal and state returns.

He left the office with the completed returns happy in the thought that he was finished with his “uncles” for the year and pleased with himself for being so early. He returned home, signed the returns with his wife, and went directly to the Post Office to mail the returns.

The next afternoon I got a call from the client. He had gotten another 1099-R in the mail that morning! His wife received a pension from Lucent Technologies and, while the amount of the annual pension generally remained constant, early in the year Lucent had made a special one-time distribution to its retirees from a fund other than the regular pension fund, and issued a separate 1099-R for this distribution.

The client returned to my office that afternoon and I prepared amended returns, for an additional fee, to claim the income and withholding from the new 1099-R. I instructed him to wait to mail the amended returns until he received the refund checks from the original returns, so as not to confuse the IRS and NJ by having two returns in the system at the same time. The bottom line is that the client had to pay twice for filing his returns.

More recently another long-time client – a single mother with a daughter in college – gave me what she thought was all her and her daughter’s “stuff” on January 27th. I cautioned her that she should wait for a few more days to make sure she had received everything – but she assured me she had. She was, of course, in a hurry to get the refunds, which she always had directly deposited into her bank account.
Luckily I did not rush to do the return. The next day she called to say that something else had arrived in the mail – a W-2 for her daughter’s work-study, which she dropped off for me. Again I did not rush to put pen to paper. The next day she called again to say that still another tax form had arrived – a Form 1098-T for college tuition. It was a good thing I had waited!

If you have a brokerage account there is an excellent chance that you will receive at least one corrected “Consolidated 1099 Statements” to report taxable dividends, interest and gross proceeds after the initial statement arrives in late January. The final corrected 1099 may not arrive until mid-March.

And don’t get me started on K-1s. These forms from partnerships, LLCs and sub-chapter S corporations are not required to be distributed by January 31st, and many do not arrive until the end of March or beginning of April!

My instructions to clients clearly state:

Do not give or send me your ‘stuff’ until you have received all the forms and information needed to complete the returns! That means every W-2, every 1099, and every K-1. I do not want to receive your 'stuff' in installments. If you are waiting for an information return such as a Form K-1, for details from your broker on the cost of stock sold during the year, or for anything else, please do not give or send me anything until you have everything in hand!

So – don’t be in such a hurry!


Jeannie said...

Good suggestions. I often find that I have left something out as I gather things and put them together for taxes. And yes, some companies are not sending the forms by the end of January, so one needs to think about what would/should be coming before thinking the bookwork is finished.

Anthony said...

As far as I can tell, the IRS won't even release the K-1 forms until January 31. That's what my tax software says, and I couldn't find the forms on the IRS website.

Ah, just checked the website again, and the 1120S K-1 was released today. The 1065 K-1 for 2010 is still not there, though.