The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

For Doctors and all Investors

By Hayden Adams

***

Red Flag #1: Under reporting income

Generally speaking, all income is taxable unless it’s specifically excluded, as is the case with certain gifts and inheritances. In most instances, the income you earn will be reported to both you and the government on an information return, such as a Form 1099 or W-2. If the income you report doesn’t match the IRS’s records, you could face problems down the road—so be sure you include the income from all of the following forms that are applicable to your situation:

• 1099-B: The form on which financial institutions report capital gains.
• 1099-DIV: The form on which financial institutions report dividends.
• 1099-MISC: The form used to report various types of income, such as royalties, rents, payments to independent contractors, and numerous other types of income.
• 1099-R:The form on which financial institutions report withdrawals from tax-advantaged retirement accounts.
• Form 1099-INT: The form on which financial institutions report interest income.
• Form SSA-1099:The form on which the Social Security Administration reports Social Security benefits (a portion of which may be taxable, depending on your level of income).
• Form W-2:The form on which employers report total annual compensation, payroll taxes, contributions to retirement accounts, and other information.

If you receive an inaccurate statement of income, immediately contact the responsible party to request a corrected form and have them resend the documents to both you and the IRS as soon as possible to avoid delaying your tax return. Also, be aware that you must report income for which there is no form, such as renting out your vacation home.

CITE: https://www.r2library.com/Resource/Title/0826102549

***

Red Flag #2: Misreporting investment gains

When you sell an investment, you’ll need to know both the cost basis (what you paid for the investment) and the sale price to determine your net gain or loss. The cost basis of your investment may need to be adjusted to account for commissions, fees, stock splits, or other events, which could help reduce your taxable gain or increase your net loss.

Financial institutions are required to adjust your investments’ cost basis and provide that information on a Form 1099. However, brokerages aren’t required to report the cost basis for investments purchased prior to a certain date, which means you’ll be responsible for supplying that information (see the table below). Be sure to keep records of all investment purchases and sales—even those for which your brokerage is responsible.

Your reporting responsibility

Depending on security type and date of purchase, you—rather than your brokerage—could be responsible for reporting the cost basis of your investment to the IRS.

CITE: https://www.r2library.com/Resource/Title/0826102549

***

***

YOUR COMMENTS ARE APPRECIATED.

Thank You

***

***

Filed under: Accounting, Experts Invited, Investing, Taxation | Tagged: 1099-M, Accounting, cost basis, Hayden Adams, Investing, IRS, IRS audit flags, IRS red flags, Taxation, W-2 | Leave a comment »