Your wealthy clients likely deal with IRS tax forms more than other clients—and it’s likely they’re getting these forms late in the year from the businesses and employers reporting things like their income and investment proceeds. Many forms begin arriving early in the calendar year. But some of the paperwork doesn’t get to taxpayers until March. The result: filing delays.
So which IRS forms cause the most trouble? One culprit is the W-2. Another is the Form 1099, which arrives near the end of January for the preceding year.
“Some of the 1099s, including those reporting proceeds from the sale of stocks and securities on Form 1099-B, are due to the recipients by February 15,” said Jim Brandenburg, a tax partner at national professional services firm Sikich in Milwaukee. “Occasionally, the parties issuing the 1099s and other tax forms may need to issue corrected 1099s, and these could come weeks after the originally issued forms.”
Another form, 1099-DIV, which lists dividends and distributions, can also arrive in late winter or spring.
Bruce Primeau, a financial planning consultant with Summit Wealth Advocates in Prior Lake, Minn., said that of all the forms, the Schedule K-1 for business partnerships is the worst.
“Many clients have to hold off on finalizing their personal tax return until all K-1s are received and, unfortunately, many are not received until after the April 15 [tax] deadline,” he said. “Return extensions are a regular practice for those folks.”
The Schedule K-1 is issued by partnerships, S corps, trusts and other entities and “generally cause the most trouble as they’re complicated, lengthy and can arrive anytime from January until September,” Brandenburg said. When the forms arrive on the later side, investors must delay their tax return filings until the extended due date in mid-October, he said.
“The Schedule K-1 is … notoriously late and prone to amendments,” added Megan Slatter, wealth advisor at Crewe Advisors in Salt Lake City. She said taxpayers should be organized, “keeping tabs on when to expect the K-1s, filing extensions when necessary and ensuring the rest of the tax return is primed and ready to go when the K-1 finally arrives. Planning for estimated taxes is also essential for income generated without withholdings.”
While most wealthy clients are already used to juggling multiple tax forms and navigating tight tax deadlines, those new to K-1s “may have a steeper learning curve,” Slatter said. “I recommend starting the document-gathering process early, keeping communication lines open with your tax professionals and leveraging technology to help track your tax documents and stay organized.”
Primeau said one attack is to anticipate K-1 income or losses ahead of time using last year’s information.