12 Feb Oops! I Wish I Knew That.
Here are six tax topics that seem innocent but can cause problems if not handled correctly.
1. Gambling winnings. If you receive a tax form at a casino for your winnings, that information is sent to the tax authorities. Since the form typically only contains the amount you won, save copies and records of any gambling losses.
2. Maturing CDs. Be careful with maturing CD’s in a retirement account that are rolled over into new CDs. Your financial institution may provide you with tax forms showing the distribution, but not the rollover. You will need to account for this on your tax return. In this case, there is not a taxable event, but the IRS may think there is!
3. Retirement distributions. Make note of any distributions from your retirement accounts and note the type of account. You should receive informational 1099’s for the distributions. Depending on your age and the type of retirement account, a number of tax surprises could occur if not properly recorded. This includes early withdrawal penalties, potential required minimum distribution penalties, and income tax on the withdrawals. Remember that required minimum distributions are not required in 2020. The early withdrawal penalty is also waived in 2020.
4. Gifts over $15,000. If you provide gifts in excess of $15,000 ($30,000 for a couple) to any one person during the year, you must fill out a gift tax return.
5. Contemporaneous documentation. The time to put together proper documentation to support your deductions is when the activity takes place. For example, if you misplace a receipt for a charitable donation, you can go back to the organization and ask for a copy of the “old receipt,” but a new receipt to replace the one you lost is not valid documentation. Common areas where this is important are charitable contributions, mileage logs, and other itemized deductions.
6. Unemployment income. Unless specifically excluded by the federal government, unemployment income is taxable. Many taxpayers become surprised by an unwanted tax bill if federal withholdings are not taken out of these payments.