Switching over accountants can be a messy transition. However, it does not have to be that way. By knowing the documents you need to be responsible for, it will make you better prepared. Generally, the investor that is most prepared will get their tax filing done in a timely fashion. For instance, I tell my clients to provide me with the requisite documents (from the below) by February 28th to ensure timely completion of their return. It is important to be able to provide the below documents to your accountant as soon as practical.
Please note that many of these may not apply to your situation but it’s meant to be a fairly good checklist for you during tax time. In the below, I will detail the reason why each request is needed. As an additional caveat, all of the below should be sent to a secure portal (i.e. not just sent via regular email). You need to ensure your data is protected as best it can be.
1. Previous two years tax returns for individual and business (if applicable).
As accountants, we need to ensure carryforwards get transferred over appropriately. By having the prior year’s returns, we will be able to see this. Additionally, there are some underpayment calculations that are needed to be made and the prior year return shows this information.
2. Depreciation schedules for all rental properties
This will generally be in your prior year return. However, some accountants and software programs don’t print this out. This document will appear after the form 4562. You need to request this from your accountant so the depreciation is correctly stated.
3. Full name, date of birth, and social security number of the taxpayer, spouse, and dependents
These are important demographic information that is needed so we can e-file your return. Additionally, if you are looking to claim the child tax credit correctly, your accountant will need this information for the tax software to compute.
4. Phone number and email address
We need to know how to reach you. This one is pretty self-explanatory.
5. Did your filing status change from the previous year?
If you got married during the year, it’s important to let your accountant know. Generally, filing together will yield greater tax benefits than filing separately. If you have a spouse and got married this year, make sure to discuss your plan for filing taxes and who you intend to use.
6. Direct Deposit Information
Unless you pay the government via check, you will want to set up direct deposit (if you have a refund) and direct debit (if you owe). This will cut down the work you will need to do. You will need to provide the account number, routing number, bank name, and if the account is checking or savings.
7. W-2’s from all jobs during the year
It is important your accountant has this because if you don’t report correctly, you will get a correction notice.
8. All 1099 INTs and DIVs received during the year
Generally, these come from brokerage accounts or savings accounts. You need to report the activity during the year for interest and dividends received. As the 1099s are reported to the government, your accountant needs to know all of the activity.
9. Cryptocurrency transactions
This is a big one. As crypto becomes increasingly mainstream, it has presented investors a challenge. Unlike traditional brokerage accounts, many wallets and exchanges do not keep track of what you purchased and sold the assets for. As such, you need to keep track of this. There is various software that can assist but at a minimum, you need to know when you purchased cryptocurrency, when you sold, dollars purchased, and dollars sold. If you have any questions, contact your CPA. It is a very nuanced area.
10. If you are self employed, you will need to provide a listing of income and expenses
For my clients, I provide them with a template for Schedule C. I have two separate ones; one for flipping and one for realtors. The expenses need to be appropriately captured as well as the income. Generally, we like to see any 1099s received by the one that’s self-employed.
11. K-1’s from partnerships/S Corporations
Income/Loss from K-1’s needs to be reported. Any partnerships entered during the year need to be disclosed to your account because if you don’t file one, you will likely need to amend your return. This can be costly both in terms of dollars and time.
12. Schedule E - Reporting of Income and Loss
For my clients, I provide them with a template for Schedule E. There are two; one for traditional rentals and one for house hackers. I do this to keep organized and have a system and also provide my clients with structure. I recommend keeping track of the income and expenses on a monthly basis. That way, you will be less likely to forget expenses.
13. Rehabs for Rentals
You will need to show the expenses incurred for rehabs, if applicable. I also have a template for clients for this. That way, we can go through it together and it’s a way for me to add value. You’ll want to discuss with your accountant about the possibility of accelerating depreciation on some of the dollars that were put in.
14. Form 1098 for all rental properties
As discussed in a previous article, this is one of many things I do for my clients. The interest needs to match for what’s reported. Additionally, there can be amounts for insurance, property taxes, and mortgage insurance premiums paid. It is crucial these amounts are reported accurately. It’s tough to say how many clients did not get this correct, but there were a good percentage that did not get it right. As such, it’s best to provide it to your accountant and ensure you calculated the amounts correctly.
15. Form 1098-E (student loan interest)
Student loan interest can be a deduction. As such, if you have any, you’ll want to provide your accountant this information.
16. Listing of contributions to roth IRA or traditional IRA
Make note of the amount of contributions you make to these retirement vehicles. In some instances, you may be ineligible to contribute. Know the rules as it pertains to the contributions you can make as well.
17. Estimated payments made during the year
If you live in Illinois, an accountant can access the amount of state payments made. However, for federal, if you made estimated payments, you will need to provide the amounts paid. It is rare we request documentation and receipts, but for this, it is helpful (but not required) to provide us with copies of the checks/payments made during the year for federal taxes.
18. Amounts paid for child and dependent care credits (form 2441). You will want to list this out for each child.
If you enrolled your child in daycare, summer camp, or after school activity that you paid money for, keep the receipts, or obtain a statement for all amounts paid during the year. You can potentially get a deduction for this. You will need the address, name of the business, and EIN.
19. Amounts paid into 529 plans, if any
If you have a child, you can contribute monies into a 529 plan for college education. If you did this, we would need the account number and amount contributed during the year. The deduction would only be for state purposes.
20. Listing of charitable contributions
If you itemize, this will be helpful to have. I provide my clients with a simple spreadsheet divided between cash and non cash donations. It’s important to keep track of amounts paid in so you can get a deduction. Even if you do not itemize, you can get a $300 deduction (for 2021). It is not known at the time of writing if this will be extended for 2022.
21. Driver’s License for taxpayer and spouse
This is an e-file requirement for Illinois. You will need to provide a driver’s license to e-file Illinois’ return.
22. New property documents (traditional rental)
If you purchased a property during the year, your accountant will need the closing statement from your mortgage company and appraisal. The closing statement will provide your accountant the necessary information to calculate your basis and the appraisal may provide an opportunity to allocate a greater percentage to land. You will want to get this information during the year so you know how much depreciation you will be able to claim. Your accountant will also appreciate this because this is a task that can be done outside of the busiest time of the year.
23. New property documents (house hack)
In addition to the above for #22, you will need to provide the unit you are living in on the appraisal, total bedrooms, and total bedrooms you are occupying. Sometimes, the appraisal does not calculate the total number of rooms properly. As discussed in a previous article, this percentage will also be used for common expenses that aren’t directly allocable to one unit such as mortgage interest, water, insurance, and property taxes.
The above is an encompassing list of most of the items you will need to provide to your CPA on an annual basis. While it is time consuming to keep track of some of these items, your reward will be in the form of a lower tax bill and a happier CPA because you will now be organized. My hope is that this article will make you a more prepared investor for tax time.
If you have questions on your real estate tax strategy, you can reach me (Aaron Zimmerman) at email@example.com.
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