Our Team’s Top Tax Questions
We receive a lot of questions from clients throughout the year pertaining to taxes — which is a good thing since maintaining tax efficiency is an important part of any financial plan. In the interest of serving you well, and proactively, we thought we’d provide answers to the most commonly asked questions we receive about taxes, especially during tax return season. So here we go.
- What is a 1099-DIV? A 1099-DIV is generated if some of the stocks you own paid dividends or mutual funds you invested in made a capital gains distribution to you during the year. The form is used by banks and other financial institutions to report dividends and other distributions to you, the taxpayer, and to the IRS.
- Why did I receive only one 1099-DIV when I have more than one investment account? If one of your accounts is a retirement account, you will not receive a 1099 for that account unless you took a distribution during the year. Since retirement accounts are tax-deferred, the earnings are not reportable to the IRS as taxable income.
- What is the difference between long- and short-term gains? The difference lies in the length of time an investment is held or owned and the corresponding tax treatment. Long-term gains result from investments held for a year and a day or more, and receive preferential tax treatment. Short-term gains result from investments owned for one year or less and are taxed at ordinary income.
- How do I claim foreign tax paid on my U.S. tax return? You can either take the eligible foreign tax paid as a deduction on Schedule A, as with other common deductions, or take advantage of a tax credit, typically by using Form 1116. If the credit is larger than your U.S. tax bill, you can carry over the credit to cover future tax obligations. The foreign tax credit does not apply to taxes paid in Syria, Sudan or North Korea. Certain situations allow you to forgo Form 1116, such as if your foreign-taxed income resulted from 1099-reported passive income such as stock interest and dividends, as long as you owned the stock for at least 16 days.
- What is the 60-day rollover for an IRA? This rule requires you to roll over assets distributed to you from an IRA to another qualified retirement plan within 60 days in order to avoid owing interest or penalties to the federal government. A direct rollover, in which the assets are directly transmitted to the new plan, is recommended over receiving a check and depositing it into the new plan, as this avoids the potential for missing the 60-day window. Note: You can only perform one 60-day rollover per year.
- Do I owe taxes if I roll over my TSP or 401(k)? You will not owe taxes if you roll over assets withdrawn from your TSP or 401(k) to another qualified retirement plan, such as an IRA, within 60 days.
- What is tax-loss harvesting? Selling stocks that have lost value to reduce or offset federal capital gains taxes from profitable investments is known as tax-loss harvesting or tax-loss selling. Investments that no longer fit your personal strategy, have a low potential for growth or that can be replaced by similar instruments in your portfolio are typically considered for tax-loss harvesting.
If your question isn’t answered here, check our Tax Information & Resources page for other helpful tax-related information. Or contact us for guidance or to request a referral to a qualified tax accountant.