Personal Finance

Monday, February 1, 2016

Five Common Investment Tax Filing Errors

Senior Estate Planner, Mike Repak, explains some common tax filing errors and how to avoid them.



1. Paying more than you should on investments that you sold.

A common mistake investors make is to pay too much in taxes because they did not know their original cost basis. Investment companies, including Janney, are now required by the IRS to calculate cost basis, but that wasn’t always the case. If you’ve held shares of a stock or mutual fund for 10–15 years or more, you are responsible for calculating the cost of the shares you purchased. The cost-basis is used to determine your gain on the shares when you sell them. Calculating cost basis becomes even trickier when you add in multiple purchases of shares, like when dividends are reinvested. We suggest that you consult a tax advisor to assist you with your cost basis calculation when it is not provided by your investment firm. This can help you avoid paying too much in taxes on sales—particularly when they involve large sums of money.

2. Overlooking taxes paid on retirement distributions.

It’s very common to elect to have taxes withheld, once you start taking distributions from your IRAs and other retirement plans when you retire. It’s easy to forget that these taxes have already been withheld on your behalf and sent to the IRS by Janney or your other investment providers. It’s important to check the IRS form 1099-R that you receive from each of your investment providers, so that you can include taxes already withheld on your tax return.

3. Filing your return too soon.

No one wants to wait to get their refund. After all, it is your money. But filing too early can lead to additional filing costs for amended returns or penalties for missed income. It is very common for investments to issue amended 1099s. It’s not always your provider’s fault. Frequently, Real Estate Investment Trusts (REITS) and Limited Liability Partnerships (LLPs) reclassify dividend and interest paid to investors. That’s the most common reason why amended tax forms are required. If you have received amended 1099s in the past or you hold investments that have reclassified distributions in the past, you should consider waiting to file your taxes until closer to the tax filing deadline.

4. Overlooking tax law changes.

There are significant tax law changes almost every year that impact investments. It’s very difficult for the public to keep up-to-date on all the changes. One way to make sure you catch all the changes is to consult with a tax professional. But if you file your taxes yourself, you should make sure to read all of the tax communications sent from Janney and your other investment providers. Janney summarizes some of the important tax changes related to investments on our website at Janney.com\taxes. You can also visit the IRS’s website for more information.

5. Not double-checking your math.

Online tax preparation sites have become very easy to use. They also check for common errors, omissions, and math errors. However, there is no substitute for double-checking your math and data entry. Basic math mistakes are continually cited on the IRS’s website as one of the most common mistakes. In fact, if you file using paper, the IRS says you are 20 times more likely to make an error than if you file electronically. No matter how you file—paper or electronic—take the time to look at the summaries of your income and deductions, and check to make sure everything adds up before you file.

Contact your Janney advisor for more information, or if you have questions about your 1099s and other tax forms that you receive from Janney. You can also visit janney.com/taxes to read more about important tax changes related to investments. If you need help filing your taxes, you should contact your qualified tax professional.

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Michael Repak
Michael Repak
Vice President/Senior Estate Planner
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Mike provides advice and guidance in all aspects of financial, tax, and estate planning issues. He earned his Bachelor’s degree from William Paterson University in Wayne, New Jersey, and has a Master’s degree from the University of Wisconsin in Madison, Wisconsin. He has a CPA/PFS credential, and Series 7 and 66 securities licenses. He received his J.D. from the University of Florida and his LL.M. in Tax Law from NYU.

He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants. Mr. Repak has served on several non-profit and civic boards, is a graduate of Leadership Philadelphia, and a member of the Union League of Philadelphia.


Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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