Be On The Lookout For These Tax Statements

January 23, 2005 06:07 AM

Be On The Lookout For These Tax Statements

Excerpt: Here's a look at some of the more common tax documents that should be arriving in your mailbox shortly and what they mean to your tax return.

January is not your mail carrier's favorite time of the year.

Every U.S. Postal Service delivery bag is overloaded with statements from employers, banks, stockbrokers and other institutions and agencies that were involved in taxpayers' financial lives last year. Each of these groups has, by law, until Jan. 31 to get their annual tax statements in the mail to taxpayers.

Here's a look at some of the more common tax documents that should be arriving in your mailbox shortly and what they mean to your tax return.

W-2
This is the key form, and you need one from each employer you worked for during the past year. Your W-2 shows how much money you made, how much income tax was withheld, Social Security and Medicare taxes paid and any benefit contributions -- retirement plans, medical accounts and child care reimbursement plans.

1098
For most homeowners, mortgage interest is tax deductible and this document will tell you how much you paid last year. Your lender is required to send you one of these forms if you paid at least $600 interest. Actually, your mortgage company probably won't send you an official Internal Revenue Service form, but a document of its own design that contains the same data. In addition to the mortgage interest, other information often found on this statement includes amounts paid toward points to get the loan and escrow disbursements for real estate taxes (also deductible) and property insurance (not deductible).

1098-E
Are you paying back a student loan? The interest on your educational debt is reported on this form; your lender must send you one if the interest tally is at least $600. You may be able to deduct your student loan interest and possibly other loan-related amounts, such as origination fees and capitalized interest. To figure the deductible portion of the interest amount found here, use the worksheet in your Form 1040 or Form 1040A instructions.

1099-INT
If you earned more than $10 in interest on a bank account or a certificate of deposit, you'll get one of these forms for each account. Don't dismiss this statement if you reinvested the interest. Tax law says you received the income even if you didn't actually have it in your hand, and reinvested earnings are still taxable income. 1099-INT statements also are issued to persons who cashed in savings bonds.

1099-DIV
Earnings from individual stocks and mutual funds are reported on Form 1099-DIV. This will show both dividends and capital gains distributed over $10. As with reinvested interest, if you used the dividends or distributions to buy additional shares of the stock or mutual fund, you still have to pay taxes.

Don't be confused by capital gain distributions if you didn't sell any of your stock or fund shares or if your investment lost value. Capital gain distributions are not connected to these considerations. Rather, these distributions come when a portfolio manager sells securities at a profit during the tax year. This profit then is passed on as distributions (usually at the end of the year) to all the individual fund shareholders proportionate to the amount of shares they own. Unfortunately, this means you may have to pay taxes regardless of whether you made money on the investment.

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