Tax Season Investor Guide

To ease some of the burden of tax season, we've created this guide that contains all the information you need to address your tax season questions. It will help you become familiar with important dates, deadlines, challenges, and opportunities that may arise during tax season. Of course, if you have additional questions about anything included in this guide, we’re just a phone call away. We look forward to working with you this tax season!

Corrected Forms Even with our weekly mailing schedule, further delayed reporting and reclassification can sometimes occur, resulting in clients receiving corrected 1099 forms. Some examples include:

• Mutual funds revise their financials to include the amount of gross-ups for foreign withholding, tax-exempt payments subject to alternative minimum tax, and the portion of the distributions derived from U.S. Treasury obligations
• After year-end auditing, real estate investment trusts determine depreciation and other deductions reduce earnings so that distributions are changed from income to return of capital
• Any corrections to cost basis Because brokers are required by the IRS to amend any 1099 tax form that has an adjustment greater than $100, you may receive an amended 1099 tax form after March 15. An income reclassification announcement could prompt an amended 1099 at any point during the year. However, income reclassification events typically occur less frequently after March. If you need to file an amended tax return, it’s recommended you discuss the situation with your tax advisor prior to refiling so they can determine the best course of action based on your individual circumstances. If you need to request a corrected tax form, please contact your financial professional.

Income Reclassification What is income reclassification? Income reclassification is an annual process where 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.

When does income reclassification occur? 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.

How does income reclassification impact my tax statements? 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. Example: An investor receives a $200 distribution from XYZ Fund on July 1. At the time of the distribution, XYZ Fund characterizes the distribution as a nonqualified dividend. After the end of the year, XYZ Fund announces that the distribution is actually composed of 50% qualified dividend and 50% return of capital; and, your 1099 is amended to reflect the current tax characterization of the distribution.

Which investment types are likely to reclassify each year? Registered investment companies (RICs), commonly referred to as mutual funds and REITs, are pass-through vehicles for tax reporting purposes. As such, the tax character of distributions made by these investments is more likely to change at the conclusion of the year than, for example, an equity that pays dividends from current or retained earnings. Additionally, mutual funds must determine the amount of gross-ups for foreign with tax-exempt payments subject to alternative minimum tax, and the portion of the distributions derived from U.S. Treasury obligations. The table below provides an explanation of why certain investments are more likely to experience income reclassifications and the tax statements that may be impacted. The investment types are listed in the order most likely to receive corrected tax statements due to reclassification.

All Mortgage-Backed Income Reporting (AMBIR) Information For tax year 2023, AMBIR reporting will be included within the 1099 Consolidated Tax Statement. REMICs and mortgage pools have a reporting deadline of March 15. As a result, LPL will extend the mailing date of original 1099 Consolidated Tax Statements until March 15 for clients who hold particular types of investments. If you invested in any of the securities listed below, the original 1099 Consolidated Tax Statement will be mailed by March 15, 2024.

• Unit investment trusts organized as grantor trusts
• Royalty trusts
• Commodity trusts
• Holding company depositary receipt trusts
• Mortgage - backed pass - through pools

Filing Extensions

How to know if you should file an extension It’s always a good idea for you to maintain an open line of communication with your financial professional and your tax advisor throughout the year to ensure the best tax strategy and outcomes for you. This dialogue will help you decide if filing an extension is the best course of action. There are many reasons why filing an extension might make sense for you. For example, the volume of data or complexity of certain transactions inside or outside your account may require additional time to address. Also, if you’re expecting to receive your 1099 in the third or fourth mailing wave in March, it may be reasonable to consider filing an extension to allow sufficient time for your tax advisor to accurately complete your tax return forms. LPL Financial does not have a method to verify in advance which mailing wave your account(s) will fall under.

What filing an extension accomplishes Filing an extension grants additional time (six months) to submit a complete and accurate tax return. However, you’ll still need to estimate whether you’ll owe any taxes and pay that estimated balance by April 15. Extending the return allows you and your tax advisor more time to prepare and ensure filing of an accurate tax return. In many cases, you may still be waiting for additional information, such as your Schedule K-1 or corrected 1099s, to complete your tax return.

Benefits of extending a tax return Filing an extension allows additional time to file returns without penalty when you’re waiting for missing information or tax documents (such as corrected 1099s). Please remember: An extension provides additional time to file, but not additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension. It’s often less expensive (and easier) to file an extension rather than rushing to meet the deadline and having to amend the tax return later.

Extensions and Audits Extending will not increase the likelihood of being audited by the IRS. It’s better to file an extension rather than to file a return that’s incomplete or doesn’t give you adequate time to review carefully before signing.

Should I do anything differently if I’m filing an extension? No, you should give your tax advisor whatever information you have as early as possible or as soon as it becomes available. You should expect to pay any anticipated taxes owed by April 15.If you’re required to make quarterly estimated tax payments, your first quarter estimated tax payment is still due April 15. Your tax advisor may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with the extension. If you’re anticipating a large refund, your tax advisor will likely try to get the extended return done as soon as possible once all tax information is available. Your tax advisor may also want to discuss tax planning opportunities with you so that in future years, you don’t give the IRS an interest-free loan! For more information on filing extensions, please visit www.irs.gov

Preliminary Tax Statement What is a Preliminary 1099-Consolidated Tax Information Statement? A preliminary 1099-Consolidated Tax Information Statement is an advanced draft copy of your 1099-Consolidated tax forms.

Can I use the preliminary 1099-Consolidated Tax Information Statement to file my taxes? No, this 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 this document are for informational purposes only and may assist you with tax preparation.

Even though this is a preliminary 1099C Consolidated Tax Statement, is this information final? No, your 1099 Tax Information Statement is not finalized because your account holds certain securities that are subject to income reclassification and/or subject to special reporting requirements. Before your statement can be finalized, additional tax reporting information is required from these securities and has not yet been provided by the issuers of these securities.

When will the preliminary 1099C Consolidated Tax Statement be available? The advanced preliminary draft copy of your 1099C tax form will be available on Account View on February 16.

If I received a preliminary 1099C Consolidated Tax Statement, when will I receive the original tax form? You will receive your original tax forms between February 23 and March 15.

Will the preliminary 1099C Consolidated Tax Statement be mailed? No, the preliminary 1099C Consolidated Tax Statement will not be mailed.

Will the preliminary 1099C tax form be viewable on a 3rd party tax accounting site? No, the preliminary 1099C Consolidated Tax Statement will not be viewable on 3rd party tax accounting site.

Will I receive a preliminary tax statement for any other tax forms? No, preliminary tax statements are ONLY available for 1099C Consolidated Tax Statement.

How will I know which document is the preliminary 1099C Consolidated Tax Statement in AccountView? The preliminary tax statements will be watermarked with the message “Preliminary- Do not use for tax return.”

Why did I receive a 1099 Consolidated Tax Statement this year? You received a 1099 this year because you received more than $10 in taxable income this year in the form of dividend income, interest income, or proceeds from share sales income.

Didn’t I previously receive my 1099-C forms at the end of January? Why did it change? In the fall of 2008, the IRS recognized there wasn’t sufficient time to make the necessary changes, verify the data, print the forms, and mail them by January 31, so the IRS filing deadline was changed from January 31 to February 15. Additionally, many brokers, including LPL also request a 30-day filing extension which extends the filing date to March 15. However, for clients with the simplest holdings, LPL Financial will mail your 1099 Consolidated Tax Statement shortly after data is finalized, often before March 15

Can I download my tax data to TurboTax®? If you use TurboTax or H&R Block, you’ll be able to import the information shown on your original or corrected 1099 tax information statement directly into the software. To upload your tax data into the software, you'll need your full 8-digit LPL account and 11-digit Document ID listed on your tax statement. Forms will be available for download once your tax statement is available. We recommend you wait to download your tax statements until you have received all tax statements in the mail. For technical questions, please contact Intuit TurboTax® or visit http://turbotax.intuit.com/support/.

Will I be able to import the cost basis information from the Realized Gains and Losses statement from Account View into TurboTax® and/or H&R Block? No. The cost basis data is imported into TurboTax^® from your 1099 Consolidated tax statement. To ensure accuracy, compare the data imported into TurboTax^® to data shown on your 1099 Consolidated Tax Statement.

Helpful Information Required minimum distributions (RMDs) are minimum amounts a retirement plan account owner must withdraw annually starting with the year they reach age 73; or later for employer-sponsored plans where participants are allowed to defer RMDs until the year in which the participant retires or separates from service.

Important information regarding required minimum distributions from your IRA Required minimum distributions (RMDs) are mandatory annual withdrawals that must be taken from your traditional, SEP, or SIMPLE Individual Retirement Account (IRA). Beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking RMDs to age 73. If you reach age 73 in 2023, the required beginning date for your first RMD is April 1, 2024. Subsequent RMDs must be taken by December 31 of each year. If you are already meeting your RMD requirement elsewhere, you do not need to take a distribution from your LPL IRA.

Are there deadlines for taking your RMD each year? You must satisfy your RMD by December 31 of each year. There’s an IRS provision that applies to the first year in which you must take out a RMD, where the IRS provides you with the option to defer your first RMD to be taken by April 1 of the following year. For example, you turned age 73 in 2024 and are now required by the IRS to take a RMD. You have the option of deferring your first RMD until April 1 of 2025 instead of taking it by December 31 of 2024. If you choose to postpone your first RMD withdrawal to April 1 of 2025, then you will have to take out a second RMD by December 31 of 2025. Deferring your first RMD will result in you taking two RMD withdrawals within the same tax year, which could potentially cause a taxable issue for you. We recommend that you consult with a tax professional before implementing this strategy.

How much do I need to take out of my IRA? Your RMD is calculated by dividing the market value of your IRA as of December 31 of the prior year by your life expectancy factor taken from the IRS’s Uniform Lifetime Table. If you have multiple IRAs, you must calculate your RMD separately for each one, but you may combine your RMD amounts and take a distribution from one IRA or across several IRA accounts (excluding inherited IRAs). Your quarterly statements from LPL include a section specific to your RMD to help you track your year-to-date distributions. We encourage you to meet with your financial professional or tax advisor to evaluate your individual situation and help you make an informed decision about your IRAs and your RMDs.

What action is required on my part? We cannot make distributions from your IRA without specific directions from you. If you don’t take your RMD in a timely manner, you may be subject to a 25% penalty assessed by the IRS on the amount you should have withdrawn. Please speak to your financial professional about your RMD and withdrawal options.

How do I request my RMD? If you have a pre-existing arrangement with your financial professional to meet your RMD, no further action should be required from you. Otherwise, your financial professional can help you determine the best method to meet your specific needs and assist you with setting up your RMD withdrawal.

I’m older than 70½, can I still make a contribution to my IRA? Due to the tax law changes contained in the SECURE Act which became effective on January 1, 2020, there is no age limit for making regular contributions to a traditional or Roth IRA.

Where can I obtain additional information about RMD requirements? Your financial professional can provide you with additional information. We also encourage you to discuss your specific needs with your financial professional and tax advisor.If you have any other questions, please contact your financial professional.

This material was prepared by LPL Financial, LLC.

This material is not intended or written to be used, and cannot be used or relied upon, by any advisor or tax payer for the purpose of(i) avoiding penalties under the Internal Revenue Code, or(ii) promoting, marketing, or recommending to another party any transaction(s) or tax-related matter(s).

Neither LPL Financial nor any of its representatives provide legal or tax advice.

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