Don’t Put That 1040 Client Copy Tax Return Away Just Yet

I suspect that most of you have completed your 2024 taxes by now. Tax time is a hassle and most people have the urge to quickly file away the paperwork once their accountant tells them the taxes have been completed.

I think it’s a good idea to take a few minutes to go through the various schedules on the 1040 to confirm all of the assets and liabilities that make up your estate. You can use that review to make sure that you have your assets protected from probate. The 1040 is your opportunity to do an annual review of all of your assets and to update your annual asset list (You do have an asset list that you update annually, don’t you??).

Equally important is your opportunity to review the 1040 of a friend or loved one who is or will be relying upon you to handle their affairs after they pass on. Reviewing that person’s 1040 will allow you to have a snapshot of all their sources of income so that you can make sure they are properly protected from probate. You may find a bank account or a brokerage account that they’ve never talked about and maybe even forgot about.

Your 1040 is only about 2 pages long, but attached to it are various schedules that give details about income and liabilities. The four schedules listed below are important for confirming sources of income. Income comes from an asset and the asset has an owner which is probably the person whose 1040 you are reviewing. Upon death, that asset needs to be co-owned with someone else, held in a trust, or designated with a beneficiary. Otherwise, you risk probate at death. Here are the four schedules to look at carefully:

• Schedule B: “Interest and Ordinary Dividends”: This schedule applies if you have over $1,500 in taxable interest or ordinary income. It’s where bank accounts, CDs and stocks, bonds and mutual funds will be found. Make sure you match up each source of income so you know what you own. If you find a bank or stock that you didn’t know about, now is the time to dig deeper.

• Schedule D: “Capital Gains and Losses”: This schedule addresses transactions related to after-tax investments like brokerage accounts and individual stocks. Go through each entry and make sure you know how the asset is owned and whether it has a beneficiary or it could be subject to probate.

• Schedule E: “Supplemental Income and Loss”: This is where income or loss related to a probate estate, trust, rental real estate or other business arrangements are listed. This is a good place to figure out if someone is a beneficiary on a decedent’s trust or estate.

• Schedule 1: “Additional Income and Adjustments to Income” has two parts: Part One: This is where all sorts of “unique” income shows up, including unemployment, alimony, business income. Gambling winnings and prizes and awards also show up here. Part Two: This has adjustments to income and, for an elderly loved one, check to see if there was any penalty on early withdrawal of savings (e.g. cashing a CD in before maturity). This could be a tipoff that the person doesn’t fully understand the ramifications of their transactions.

Before you file your 1040 away, take a minute to use this as a checklist for assets.

Fun fact: Easter is upon us. When it comes to the largest Easter Egg, the record was set in 2011 in Italy where an Easter Egg measuring 34’ 1.05” was crowned the largest ever chocolate egg at the Le Acciaierie Shopping Centre. The chocolate egg weighed 15,873lbs and had a circumference of 64’ 3.65” at its widest point.