As we near the conclusion of this tax season, I have been reflecting on how confusing the tax process can be.  For those who don’t live in the financial world on a daily basis, taxes can be an even more confusing topic. Some financial advisors partner with CPAs to help interpret and implement various tax codes, working closely with their clients during tax season.

The Importance of a CPA

According to the National Association of the State Board of Accountancy, as of August 29, 2024, there are approximately 671,855 certified public accountants (CPAs) in the United States.  For the fiscal year 2023, Forbes reports that the IRS processed more than 162 Federal individual tax returns and supplemental documents.  Easy math tells us that, from the individual filing perspective, each CPA is responsible for approximately 241 filers.  This does not include the various other responsibilities CPAs attend to, such as taxes for businesses, partnerships, and trusts.

A key question people often ask is: “When is the best time to find a CPA?”  When asked, Kage Rush of Whitaker-Myers Tax Advisors shared that the best time to look for a CPA is before tax season begins. By already being scheduled and on their calendar, you can avoid the late rush of trying to get in at the last minute and the potential for needing to file for an extension.

Now that you are on your CPA’s schedule, what information and paperwork do you need to gather before your meeting?

Tax forms to bring

In addition to bringing a copy of last year's tax return, having the correct paperwork that shows your income and employment status is necessary. Additionally, if you invest, having the proper forms is needed to file your taxes correctly.

Below are some simplified overviews for each tax form you may be required to bring, which inform the IRS of your income and how your employment status should be reported. 

Work Forms

W-2

This form informs the IRS that a company employs you and is only responsible for half of the Social Security and Medicare tax. Which, if you did not know, for each individual, the Social Security, and Medicare tax is 15.3%. The employer pays half of this amount (6.2% for Social Security and 1.45% for Medicare). The W-2 shows the IRS your Gross income, how much you paid towards State, Local, and Federal taxes, including Medicare and Social Security, and if you contributed to an employer's retirement plan.

1099 – NEC

The 1099 NEC indicates to the IRS that you are filing as an Independent Contractor.  As a contractor, you are now responsible for paying the entire 15.3% of Social Security and Medicare taxes. This allows the IRS to determine the starting point for your base taxes.  Then, as an independent contractor, you can include your business deductions on your 1099 to lower your income and reduce your tax burden.  An important side note for 1099 contractors: It is recommended that you file quarterly estimates to avoid significant penalties from the IRS. 

Investment Forms

After your work tax forms, if you invest in IRAs or Brokerage accounts, you will also need tax forms from these different accounts. 

5498

If you saved money in a Roth IRA or a pretax IRA, your custodian (the company that holds your IRA, such as Fidelity or Charles Schwab) will send you this tax form in You might ask, “If I have to have all my tax information completed by April 15th, why do custodians wait until May to send me this form?” The simple answer to this question is that individuals have till April 15 to make contributions for the prior tax year.  One reason an individual might use this contribution strategy is to determine their tax liability and then make a contribution to reduce that tax burden, or ensure they fall within the income range to make contributions for their Roth IRA. 

However, if you want to file your taxes before April 15, you can request the amount you contributed for the prior year from your financial advisor and then report it on your tax return. Once your Form 5498 comes in May, you should keep it with your other records. 

1099

If you are investing money in a non-retirement brokerage account, you will receive a 1099-Composite tax form.  This informs the IRS of realized gains within your Brokerage account.  It will categorize the gains as either Short-Term or Long-Term gains.  Short-term gains are taxed at ordinary income rates. Short-term gains occurs when an investment is sold within one year of purchase for a gain. Individuals that day trade with single stocks will see this type of gain. Long-term gains occur when a person buys a position and holds it for longer than 365 days.  At this point, you benefit from potentially lower Capital Gains tax rates. 

1099–R

This is a significant tax document for clients who are now retired and are collecting income from a Pension, an Annuity, Retirement/profit-sharing plans, IRAs, and Insurance Contracts. This informs the IRS of the total amount of money you received from these various income sources and the federal taxes that were withheld. 

1099 – SSA

This tax form is one document that makes little sense to me since a person that is receiving Social Security Benefits is only collecting a benefit for which they paid FICA taxes their entire working lives! And now that they are collecting a benefit, a portion of the benefit may be taxable. Regardless, this form provides the IRS with the total amount of benefits you received in the prior tax year.

The helping hand

As shared, taxes can be confusing. Knowing which tax forms you need and the reasons for each one is beneficial to know ahead of time. However, if you have questions, always feel free to reach out to your financial advisor. If you’d like help filing your 2025 taxes or tax preparation assistance for 2025, schedule a meeting with Whitaker-Myers Tax Advisors to guide you through the process.