This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor
Year-end is approaching and being prepared is the best way to make this tax season your easiest yet. Following are important information and tools to help you get ready. As always, meeting with your financial professional early and often will ensure your questions are answered.
For more information on IRS tax form deadlines go to 2020 General Instructions for Certain Information Returns at IRS.gov
Why are there different mailing dates for 1099 Consolidated Statements?
LPL will mail 1099 Consolidated tax statements weekly as information is received from various institutions. For certain security types, final tax information from the bank, institution, or other type of issuer may be received after the standard deadline, resulting in your statement not arriving on the anticipated February date.
Reclassification: What is it and what do I need to know?
Income reclassification is an annual process in which security issuers change the tax characterization of distributions that were paid during the tax year. Often, the result of income reclassification is a more favorable tax treatment. The income reclassification process takes place after the end of the tax year, during the first quarter, when security issuers announce their income reclassification for the previous tax year. The income reclassification process affects income distributions you may have received during the previous tax year. The IRS requires final income reclassification to be reported to you on Form 1099.
Please note: Reclassification is an industry-wide activity. All financial industry firms receive reclassified data from the issuers.
Preliminary 1099 Consolidated Tax Statement: What is it and what do I need to know?
A preliminary 1099 Consolidated Tax Form Statement is an advanced one-time draft copy of your 1099 tax forms. If your 1099 Consolidated Tax Statement is not available on or before the week of February 19 you’ll receive a preliminary 1099 Consolidated Tax Form Statement. Preliminary 1099 Consolidated Tax Form Statements will be available online on Account View or through your financial professional, not mailed.
Please note: The draft form should not be considered final and should not be used for the purpose of filing tax returns with the IRS or with any state or other regulatory authority. All pages of the document are for your information only and may assist you with tax preparation.
Year-End Checklist for Tax Season 2020
To prepare for tax season, here are a few things you’ll will need to keep in mind. Should any of these circumstances apply to you, please notify your financial professional to discuss your account.
___ Federal and State Voluntary Withholding – If you have had a change of address in 2020, you must notify your financial professional by December 11, 2020 to ensure that withholding amounts can be corrected within the same tax year. It’s recommended that you review your account transactions regularly with your financial professional to verify that withholdings on distributions have been properly applied.
LPL is not able to reverse or apply any federal or state withholdings in 2021 on distributions that occurred in 2020 for individual retirement account (IRA) and qualified retirement plan (QRP) accounts. Federal and state withholdings will be reported in boxes 4 and 12, respectively, on IRS Form 1099-R, and these tax payments may be claimed as dollar-for-dollar credits on your tax returns.
___Required Minimum Distribution – Please note: Due to COVID-19, the CARES Act was created in which the IRS has waived all 2020 RMD requirements. You’re required by the Internal Revenue Service (IRS) to take a required minimum distribution (RMD) from your retirement accounts by April 1 of the year following the calendar year in which you reach age 72 (70½ if you turned 70½ before Jan 1, 2020) and by December 31 each subsequent year. The first year following the year you reach age 72 you’ll generally have two required distribution dates: an April 1 withdrawal, and an additional withdrawal by year end (for the year following the year you turn 72). To avoid having both of these amounts included in your income for the same year, you can make your first withdrawal by year end of the year you turn 72 instead of waiting until April 1 of the following year. If you’re already meeting your RMD requirements elsewhere and therefore do not need to take a distribution from LPL, the IRS still requires that LPL furnish this information. If you need to make an RMD, please contact your financial professional to help you request this distribution.
RMDs generally are determined by dividing the prior year-end IRA balance by the life expectancy factor (or distribution period), as defined in IRS tables. RMDs during your lifetime are based on a distribution period that can be determined using the Uniform Lifetime Table and your age. The distribution period is not affected by your beneficiary's age unless your sole beneficiary (for the entire year) is your spouse who is more than 10 years younger than you. If these assumptions are not accurate, please contact your financial professional for a new RMD calculation.
Please note: If your IRA is holding assets in which the values are not readily ascertainable on an established exchange or generally recognized market, your ability to rely upon the year-end account balance as a basis for computing the required minimum distribution relating to your IRA will depend upon such balance reflecting the fair market value of such assets. Please review the value shown for any such asset on your year-end account statement and provide any other valuation information you may have for such asset to your financial professional so that a new RMD calculation can be made.
Please note: Neither LPL nor the custodian of your IRA is responsible for any loss resulting from the valuation of any such asset.
___Gifting – Charitable giving is one way you can positively impact your current tax position. You may gift shares from an LPL account to a third party as a charitable donation using the F172 form. To facilitate a year-end gifting request, please contact your financial professional. LPL must receive signed instructions from you no later than December 11, 2020, to ensure that the gifting of shares takes place and settles in the desired account by year-end. Any requests received after December 11, 2020, will be processed on a best-efforts basis. To facilitate a year-end gifting request in a retirement account the CM105 form is required.
___Roth Conversions – You may want to contact your financial professional before the end of the year to discuss the details of converting your existing IRAs to a Roth IRA. You’re likely aware of the benefits of Roth IRAs: tax-free withdrawals in retirement, no required minimum distributions, and the option to leave an income-tax–free legacy to the next generation. To process requests by December 31, 2020, we must receive completed request forms by December 11, 2020. Any requests received after December 11, 2020 will be processed on a best-efforts basis. Due to the Tax Cuts and Jobs Act, a Roth Conversion is irrevocable. What this means is that Roth IRA conversions can no longer be recharacterized. Once you convert you cannot revert the money back to your Traditional IRA.
*Traditional IRA account owners should consider the tax ramifications; and age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
___Cost Basis - Your cost basis must be adjusted for certain events such as: corporate action, wash sale, return of capital, liquidating distribution, OID accrual, partnership distribution, undistributed capital gain, bond premium amortization, market discount accrual, dividends effective for prior year (i.e. mutual funds), etc.
Also, if you have any securities transferring from another firm, please be sure to have the cost basis transferred before December 11, 2020. Please contact your financial professional if you have any questions
Finally, please keep in mind that any fixed income elections for the upcoming year (2021) must be made by close of business on December 11, 2020. This may affect tax reporting for fixed income on the 1099-INT. Please contact your financial professional if you have any questions.
2020 Year-End Deadlines
November 6
In-Kind Distributions of Equities
To withdraw equity positions from a retirement account to be held in direct registration at the transfer agent in an individual name, a distribution request form (CM102) is required. Note: The timeframe can range from 2- 6 weeks to re-register securities to an individual name.
December 4
Plan Establishment Through Ascensus
For users of the prototype document service, plan establishment paperwork for the current calendar year must be submitted.
December 11
Cash Distributions / Roth Conversions/ In-Kind Journals
Processing of a 2020 reportable retirement account cash distribution or in-kind journal (including Roth conversion).
Charitable Giving or Educational or Other Gifting Through DTC
A distribution request form (CM105) is required to ensure completion of DTC requests. Note: Cash, fractional share positions, and mutual funds are not DTC-eligible. Any requests received after this date will be processed on a best-effort basis.
Federal and State Withholding- It’s recommended that you review your account transactions regularly with your financial professional to verify that withholdings on distributions have been properly applied. LPL is unable to reverse or apply any federal or state withholdings in 2021 to any distributions that occurred in 2020 for individual retirement arrangement (IRA) and qualified retirement plan (QRP) accounts.
Charitable Giving or Educational or Other Gifting Through ACAT
An Outgoing Partial Transfer/Gifting form (F172) is required to ensure completion of Automatic Transfer requests. Note: Any requests received after this date will be processed on a best-effort basis.
December 18
Disposition Request for a Worthless Security Position (receipt of deposit
To request a receipt of deposit for a security that no longer has a transfer agent, a Disposition Request form (F5) must be received by the Custody department by this date.
December 31
IRA Distribution
In order for 2020 IRA distributions to be included in 2020 tax reporting, all distributions must be made by 1 p.m. PT on December 31.
Backup Withholding
Submit either an IRS Form W-8/W-9 or an account application prior to this date to satisfy your’ IRS W-8/W-9 certification requirement and avoid backup withholding on payments. Note: In 2021, LPL will be unable to reverse backup withholding on transactions that occurred in 2020.
Required Minimum Distribution
CARES Act: Due to COVID-19, the IRS has waived all 2020 RMD requirements
Under normal circumstances, clients who are 72 years of age or older (or 70½ if you turned 70½ before Jan. 1, 2020) are required by the IRS to take a required minimum distribution (RMD) from their retirement accounts by April 1st of the following year. For each year following the first year, the RMD must be taken by the end of that year.
Trade Settlement and Adjustments
To be reported in 2020 tax forms, trades must trade by this date.
Courtesy 1099
Submit courtesy requests for non-reportable accounts that have not been set up yet. Please contact your financial professional financial advisor if you have any questions.
Qualified Plan Establishment
New 401(k)/profit sharing plan documents must be adopted by December 31 to be effective for the 2020 plan year.
Note: Retirement account distributions taken through the LPL Premier Check Writing program are reported for the tax year in which the check is cashed (not the year that check is written).
This material was prepared by LPL Financial, LLC.
Securities offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note that LPL makes no representation with respect to such entity.
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