Episode 34

Watch Out, Here They Come – Time to Get Ready for Your Tax Filing

February 2, 2023

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Welcome to The Retirement Tax Podcast, where hosts Steven Jarvis, CPA, and Benjamin Brandt, CFP, work together to bridge the gap between tax professionals, financial advisors, and their mutual clients to help reduce most people’s largest expense in retirement: taxes. Each week, they will dive into conversations around taxes, focusing on what you can truly control (instead of what you cannot) and how to set yourself up financially for your future.

In this episode, Ben and Steven sit down to chat about important dates, key documents, and all kinds of things that you need to know while preparing your tax filings for the year. You will get to hear why filing early isn’t necessarily encouraged and what they recommend when it comes to timing your filing.

Listen in to learn the ideal timeline for dealing with taxes, as well as certain areas where tax filing can go wrong. The guys also cover how they think people can avoid those missteps. If you’re looking for the best place to start when prepping your taxes this year, this episode is for you.


What You’ll Learn In Today’s Episode:

  • Dates and documents you need to be looking for.
  • Why filing taxes early isn’t necessarily the best approach.
  • Timing for tax preparation (in a perfect world).
  • Key things that tend to go wrong with taxes.
  • The main reason to press pause before filing taxes.
  • Why amendments happen and how they work.
  • Where to start when preparing what you need for this year’s taxes.
  • The importance of sending tax documents securely.
  • What a 1099 letter is and why it’s so helpful.
Ideas Worth Sharing:

“I used to think there was some imaginary award if I could file my taxes on the very first day that the IRS accepted tax returns. There have been years that I’ve done it, but there are no awards for filing your taxes early.” – Steven Jarvis

“There’s not a lot that can benefit from filing too early, but there are things that can be harmed by filing too early.” – Benjamin Brandt

“There are tax opportunities that end at the beginning of the year, but there are also tax opportunities that end as soon as we hit file.” – Steven Jarvis

Resources In Today’s Episode:
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Read The Transcript Below:

Benjamin Brandt: Welcome back to the Retirement Tax Podcast. I’m your humble co-host, as always, Benjamin Brandt, and joining me as always is the illustrious Steven Jarvis. Steven, how’re you doing?

Steven Jarvis: I’m doing really well, Ben. How are you?

Benjamin Brandt: I’m doing great, Steven. I heard a rumor that we might have to file income taxes this year. Is that true?

Steven Jarvis: You heard a rumor? Yeah, this year and every year, Ben. Well, I mean, there are couple of exceptions as to when people don’t have to file tax returns, but we’re just going to go ahead and assume that all of our listeners are going to file a tax return this year.

Benjamin Brandt: Alright, so let’s assume we all need to file a return this year, just like last year and every year, I guess. But what do we need to know if we’re filing our taxes this year?

Steven Jarvis: Yeah, that’s a great question, Ben. This episode is airing on February 1st, and so by now, a lot of our listeners are hopefully, are already receiving tax documents if they should have some of them. Their deadline for getting W-2s out is January 31st.

And so, especially if you have those available electronically to you, if you haven’t gone and pulled them already, you should be able to. This is the time of year that you’re going to start seeing your 1099s as well. That a lot of tax documents are going to start arriving in your inbox as well as in your mailbox.

More and more companies are moving to electronic distribution of tax documents. So, we want to make sure that we are keeping an eye both on our electronic notifications, our electronic accounts, as well as physical mail.

I still haven’t had a year where I’ve received no tax documents in the mail, but even the ones I received in the mail personally, I can get access to online.

Benjamin Brandt: Excellent. So, February 1st, we’re not expecting clients to have all of their documents or have their taxes filed yet. I know in many cases people want them done by then, especially if they have a return coming. But February 1st, we’re expected to be down the road, but not near the finish line.

Steven Jarvis: Yeah. From my perspective, both for myself personally and then as I work with hundreds of clients on preparing taxes. Yeah, this last week of January, first week of February, really even into the middle of February, this is all about gathering information.

Personally, I used to think that filing my own taxes was a race, and that I would somehow win this imaginary award if I could file my taxes on the very first day that the IRS accepted tax returns.

And there have been years I’ve done that. It’s been a long time though since I’ve been on the front end of filing my taxes, which is probably a good place to start as we talk about getting ready for tax filing season, is that there are no awards for being the first one to file your taxes.

And in most cases, the vast majority of cases, I really encourage people to take an approach of, let’s get everything ready, let’s get everything prepared, let’s know what we’re dealing with, and then let’s just hit the pause button for a minute.

And that’s definitely the approach we take at Retirement Tax Services as we’re working with clients. As quickly as we get documents in, we get in and we draft tax returns, we look at those documents to make sure there aren’t planning opportunities we need to talk about, but we are not off to the races to hit file as quickly as possible.

And there’s a couple of reasons for that. But Ben, I mean you and I work together on quite a few clients at this point, and so I know we take that approach on our shared clients. Is that the approach you’ve always taken with your clients as far as kind of encouraging them to not just be off to the races on filing their taxes?

Benjamin Brandt: Well, I like what you say, being ready to file, but not filing the immediate minute that you could unless you’re expecting some kind of a larger return or something. There’s really nothing that you can gain by filing early, and there are things that can be messed up by filing too early.

As unlikely as the case may be, either, could be some legislation. There was just some legislation that passed right before New Year’s that is still sort of being interpreted around getting the Venmo 1099. I’m forgetting what that was exactly called the cash app, whatever it is. But there’s not a lot that can be benefited by filing early. But there are things that can be harmed by filing too early.

Or visiting with your financial planner, and they say, “Actually, we should reach back into the previous year and we should make a contribution to your IRA or your HSA.” Or there are some things that are capped at the end of the year when the calendar flips over.

But there are things that we can continue to affect the previous year. But then generally, when we file our taxes, we do then seal that off. So, there are oftentimes conversations that need to be had.

We gather all of the information, we are ready to file, but then if there are questions that come up, there should be some time to take action if those items present themselves.

Steven Jarvis: Yeah. Ben, if I can wave a magic wand and dictate how all advisors works with their clients, which no one has asked me to do that. I don’t have that power. But for me, the way that that would in a perfect world would work, is that in February, clients are gathering other documents and sending them to their tax preparer. This is what we encourage people to do with Retirement Tax Services.

And then the tax preparer is getting all of that into a draft tax return in February and beginning of March. And then sharing those draft tax returns with both the taxpayer and their advisor as that advisor is going into their spring set of client meetings.

And that way, there are multiple sets of eyes that we can think about those planning opportunities, because there are some tax planning opportunities that end with the calendar year, but there are also tax planning opportunities that end once we hit file on that tax return.

So, being able to have all of those parties sit at the table and say, “Okay, what’s the best decision on timing of this?” Ideally, for me, that’s the way it would work. And if logistically, we could make it happen, you always talk about this with wanting to be able to meet with all of your clients on December 30th. If logistically, it made sense, I would love to file every return the day before the tax deadline.

Now, that’s not what we do, because that’s setting yourself up potentially for failure. We start filing them definitely before then, but it would be great to just make sure you know you’re dealing with as accurate information as possible. Because you mentioned that there’s things that certainly can go wrong if we get in too much of a hurry to file our taxes.

And so, let’s talk about a couple of those. One of those is just not realizing that you don’t have all your tax documents yet. Maybe you forgot about a 1099 that you’ve gotten in the past, or maybe you had a new 1099 you weren’t expecting this year.

This happened to me one year. This was quite a few years ago, and we don’t have time for the full story. Maybe I’ll have to get into it at some point, but several years ago, I won a contest. And this is with a team of people that we did this 24-hour extreme scavenger hunt, and the grand prize was airfare to Costa Rica.

And I’m the tax guy, but I forgot that I was going to be getting a 1099 for the value of that prize. And so, thankfully, it did. It came at a time where I can still do something about it, but there can be those one-off things that we just forget about.

And I know that’s a little bit of a silly extreme example, but this happens quite often when I’m working with taxpayers that will draft their tax return (and that’s part of the reason we wait) and then they say, “Oh, hey, I just got this other 1099. I just got this K-1,” whatever it is that they might not have been actively thinking about.

Not only that, but Ben, I’m sure your clients have experience with this. 1099s can be amended at times.

And that’s a huge one where we’re so grateful at Retirement Tax Services to work with advisors who can help raise their hand and say, “Hey, wait, we just got notified by Fidelity or Schwab or whoever that this 1099 is now available. This amended 1099 is now available.”

And now, instead of having to go back and potentially amend the tax return, we can just do it all correctly the first time.

Benjamin Brandt: And so, the time is escaping me, but there’s a timeline for the 1099. Is there a similar timeline for the modified 1099?

Steven Jarvis: Ben, there’s so many tax-related dates that those are the ones I have committed to memory. And on the amended side, anecdotally, it just feels like those can come at any time.

And there are cutoffs to when they have to have those things fixed. But usually, an amended 1099 is because something went wrong, something was done incorrectly, they discovered an error, whatever it might be. And so, there’s not as tight of a parameter around that.

But that is one of the reasons that we kind of push pause and say, “Let’s just wait and see if anything else happens.” Because we’ve had that experience before where we file a return and then we get that amended 1099 from the custodian that says, “Oh, wait, we reported this to you incorrectly.”

Benjamin Brandt: We had a client several years ago — maybe longer than decade ago now. They were in a hurry to file their return because they wanted to fill out the FAFSA form. They had a kid in college.

And of course, they got the amended 1099 they filed early. And then, of course, what shows up in the mail a short while later is, “Oh, that form we sent you was wrong. Here’s the right one. Good luck.”

Steven Jarvis: Yep. That’s such a great point to bring up, Ben, because 1099s to begin with, aren’t always particularly helpful. They leave out some pretty critical information, especially around qualified charitable distributions.

Sometimes, it seems like every year I see 1099s that report rollovers incorrectly. And so, the initial 1099s aren’t always particularly helpful. And then, when you get hit with an unexpected amended 1099 if you were off to the races on filing your return, you can kind of leave yourself in a world of hurt.

Benjamin Brandt: Well, that’s one of the things I’m most excited about working with Retirement Tax Services, is that our team will be able to review draft returns with clients that are excited or interested in looking at those sort of things.

Many clients will of course say, “Whatever you think is fine.” But for the clients that like to get deeper with that tax stuff, I’m really excited we’ll be able to review draft returns with clients before we file. So, we get extra set of eyes, extra conversation around those kind of things, so I’m really excited about it.

Steven Jarvis: Yeah. And for our listeners who are listening to this thinking, “Hey, I haven’t always had a great system in the past getting ready for tax season, but I would love to improve my system for gathering all these documents, tracking all these documents, where do I even start?”

So, where the RTS team starts with working with clients on, “Hey, here’s what you need to be on the lookout for,” is we go to last year’s tax return. That’s where I start with a lot of tax-related things because I love looking at their real data.

So, if you go to last year’s tax return, most tax softwares, whether you’re DIYing it or you worked for the tax professional, are going to include some level of detail. Not just of what tax documents were used to complete the return, but specifically where they came from.

So, your W-2 from ABC Manufacturing and these three 1099s, two of which were from Fidelity and one of which was from your HSA custodian, whatever those might be. But your previous year’s tax return is going to be a good source for, here’s the tax documents I expected or I received last year that I needed last year. So, I should probably be on the lookout for those as a starting point.

Then, of course, we need to start thinking about things that might have changed during the year. Did we retire? Did we change jobs? Did we start working with a new advisor who works with a different custodian? So, now we might have 1099s from our previous custodian and our new custodian. Did we turn on social security? Did we roll over funds from a 401(k) into an IRA?

We want to start looking at these life events to say, “Great, we know what we received last year, but what additional documents might I be expecting this year?” And then I always encourage clients to make sure that they just have a dedicated place that they start accumulating these.

For the physical copies, I mean, this can be as simple as, here’s my envelope. These go in at this particular spot on my desk or on my counter, or wherever it might be on top of the fridge. But that’s the same place that everything goes.

Electronically, especially if you’re working with a tax professional, you want to make sure you know what the secure way to provide those documents are. This is a good time of year to just reinforce that we need to take data security very seriously. That you should not be emailing tax documents to anyone. There should be some kind of secure portal or secure email service.

But if you’re just opening Gmail or Yahoo or whatever you use to email your grandkids, that’s not how you should be sending your tax documents. There should be a different, more secure way to make sure that that information is protected. That you are reducing the chances for someone to steal your identity

Because taxes tend to be a very prime target for scammers, unfortunately, to be able to get into someone’s life and take over their identity.

Benjamin Brandt: Well, let’s talk a little bit about the value that RTS and advisors might be working on, on behalf of their clients here in late January, early February. Can we talk a little bit about the 1099 letter?

Steven Jarvis: Yeah. So, I wanted to highlight one of the things that we work with advisors to do for their clients and for our DIYers, is just something that you can think through and do for yourself.

But one of the things that we incur, again, if I could wave a magic wand, every advisor would do this for their clients every single year. We call it a 1099 letter. It’s a year-end tax planning letter.

It’s basically a reminder of here are the things that went on during the year that will create a 1099, because that’s one of the primary … especially for people nearing in retirement, it’s one of the primary tax documents that you’re going to see.

So, because there isn’t a consistency, or I guess, there isn’t just like an automatic rule of thumb of, “Here’s how I’m going to know exactly who’s going to give me a 1099.” Because it’s not going to be from every account that you have. You can have accounts that will go years without providing a 1099. There has to be a specific activity that’s going to generate these.

And so, what we encourage advisors to do is to go through each of their clients and say, “Okay, here are the accounts that I manage.” Here’s what type of account they are, whether it’s an IRA account, a traditional account, or Roth account, whatever it might be.

And then to list out kind of in comments of, “Okay, and so these three accounts, you won’t receive any 1099, but that’s okay. That’s what we’re expecting. These two accounts, you will receive 1099s. But here’s some things to remember like was there a QCD? Was there a rollover? Was there other activity that makes this a little bit more complicated?”

And this has been a great tool for setting taxpayers up for success, because that’s kind of our whole goal. And what we do together is setting taxpayers up for success. I work a lot with advisors to help them along the way with that, but the end goal is still how do we help taxpayers pay only what they absolutely have to in taxes and not get killed on taxes. And then how do we take some of the pain out of the process.

Benjamin Brandt: So, if you’re a financial advisor that’s looking to deliver some tax value; first thing of the year, check out Retirement Tax Services for the tax letter. Also, there are like, Holistiplan is a wonderful piece of tax software. They also do the 1099 letter. The 1099 letter, like you said, is kind of what we call it.

But we can improve upon that to mention QCDs and mention Roth conversions and just have a 2022 on one piece of paper summary of all the things we want to keep our eye out on that sometimes get messed up like a qualified charitable distribution. Yeah, it’s a distribution, but it’s not taxable, and those two columns don’t match.

And oftentimes, that makes smoke come out of our computer and we try to put that in the tax software. So, to get that in a little letter as a reminder, it’s something you maybe did in January of 2022.

Now, we’re in February of 2023, we’ve since forgotten about it. It’s really great to get that little reminder first thing you say. “Oh, that’s right. I know how to account for that now.”

Steven Jarvis: And this is something any advisor could be doing, even if they’re not yet. So, if you have an advisor you otherwise love working with, go and ask them for this information. Say, “Hey, I listened to this podcast and this is something that advisors are providing for their clients. Is this information you could provide for me?”

Because this is information they have available to them. And we’ve talked about a little bit on the last couple of episodes, but this is also something that if you’re looking for an advisor who could be doing that for you, we’d be happy to help pair you up with an advisor who is committed to tax planning and committed to doing these types of things.

Benjamin Brandt: Yeah, that’s our Tax-Wise Retirement Guide which is a name we’re very proud of.

Steven Jarvis: Yeah, there’s our creativity coming out. And so, you can go to retirementtaxpodcast.flywheelstaging.com to learn a little bit more about that. We’d be happy to help you there.

Benjamin Brandt: And check out our wonderfully candid pictures. Steven and I had the great joy to be together in Florida for a financial media conference back in like September, October of last year.

And we had a photographer come take some very candid shots of ours. So, if you want to see what the two of us look like together, check out retirementtaxpodcast.flywheelstaging.com.

Steven Jarvis: And if you’d rather see what we look like together live, more details to come. But we’re really excited that later this year, we’re going to be doing our first live webinar around taxes because, as we talked about when we kicked off the podcast for the year, there’s only so deep we can go on some of these topics when it’s strictly audio that we can share.

And so, we’re really excited that in May, we’re going to be having our first live webinar where we’ll be able to add some visual aspects to the things that we’re sharing and help all of our listeners even better understand these topics we love to discuss and how they can take action to, again, take some of that pain out of the tax process and make sure that you’re sanding off the rough edges on that lifetime tax retirement bill that you’ll have.

Benjamin Brandt: And if you have any ideas as to topics you’d like us to present on for our multi-part deep dive ending in a webinar, go ahead and leave us a five-star review wherever you listen to your podcasts.

And then, in the five-star review, say, “Hey, Steven and Ben, I love the show. I’d love to see a deep dive webinar on charitable giving or on Roth conversions or on IRMAA or on whatever else.”

Now, if it’s a four-star review, we probably won’t see it. But if it’s a five-star review, we’ll definitely notice it and we might make a webinar about it. So, can’t wait to hear your feedback on that.

Steven Jarvis: Yeah, that’s a great suggestion.

Ben, I want to circle back before we wrap up the episode to a comment you made earlier about those pesky 1099s for cash apps like Venmo and PayPal. Because that’s been one that has certainly been a topic of conversation among tax professionals, that 1099-K is the form that covers that particular area.

And a lot of people, I’m sure, have heard about it last year as it got announced that this was coming, that all of a sudden that things like Venmo and PayPal are going to report your every little transaction to the IRS.

Well, maybe not every transaction, but the threshold got lowered to $600, which thankfully my wife takes care of all Venmo stuff for us, but I know we Venmo way more than $600 a year and it’s almost exclusively kind of like reimbursing family members for, “Hey, you’re at this place getting this thing, can you pick me something up and I’ll send you back?”

Or we’re all going to go to a show together, and I’ll buy all the tickets, and then you Venmo me back. Those kinds of things. And there’s a lot of kind of concern and confusion around is that suddenly taxable income, and what’s this 1099-K?

And then to your point earlier, Ben, I mean, I guess we’ll take it as a gift from the IRS that got postponed for 2022. So, for this current tax filing season we’re dealing with, that’s not going to be an issue. That form already existed; it’s just that the threshold was $20,000.

And so, it doesn’t apply to probably just about anyone listening to this show. As of right now, the expectation is that requirements still will come into place next year. I’m not going to hold my breath that feels a little dangerous. But I’d be okay if they just keep postponing that or change the threshold, we’ll see what happens. But no need to fret this year about your Venmo transactions being reported to the IRS quite yet.

Benjamin Brandt: Well, and the gift to our audience is that they will get to hear us talk about this again next year since they kicked the can. We’ll have to talk about it next year. So, you’re welcome everyone.

Steven Jarvis: So, many good topics to come this year.

Benjamin Brandt: Absolutely. So, I think we’re covered for what we should prepare our tax documents for this year and get super excited about filing our 2022 income taxes in a quick fashion, but not too quick to avoid having to refile. So, I appreciate all your wisdom on this topic, Steven. And until next time, don’t let the tax man hit you where the good Lord split you.

Hi, everyone. Quick reminder before you go. While Ben and I feel very strongly about the information we’re sharing on this podcast, it is for educational purposes only and should not be taken as specific tax, investment, or legal advice. You need to make sure that you are working with a professional to evaluate how these concepts apply to your specific situation before you take action.

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