Everything Independent Financial Advisors Need to Know to File Their Taxes

7 min read
February 08, 2021

The most wonderful time of the year is here! At least for those of us here at XY Tax Solutions, where we prepare all year round to hit the ground running and make tax season as seamless and stress-free as possible for advisors. But we realize not everyone virtually no one feels the same excitement we do about this time of the year.


We get it. Tax season can feel overwhelming at best, especially if you're a business owner. Throw in a global pandemic and subsequent tax changes and the thought alone of prepping taxes this year is enough to send any firm owner into a panic. That’s why we compiled a handy list of all the necessary information and documentation you’ll need to prepare your individual tax return this year.

General Information

Have this information at hand when it’s time to file.

  • Full Name: Proof of identification.
  • Social Security Number
  • Filing Status: Single, married filing jointly, married filing separately, head of household, or qualifying widow.
  • Dependents: Name, date of birth, social security number, and number of months lived with parents.
  • Address
  • Phone number
  • Occupation
  • Bank Information: If you’re expecting a refund that you would like directly deposited into your account, or would like electronic payment of taxes owed, you will need your routing number, bank account number, name of institution, and type of account.
  • Prior Year Tax Returns: One or two years of prior tax returns are very helpful for the persons filing the current tax return(s).
  • Quarterly Tax Estimates Paid to Federal or State: Applicable for individuals or sole proprietors who expect to owe tax of $1,000 or more with their tax return. 


Generally speaking, most income generated is subject to tax from the IRS. The following sources of income will need to be reported on your personal tax return. 

  • W-2: Standard employee documentation summarizing earned income, employee benefits, and tax withholdings. Employers must provide W-2s to all employees by January 31st.
  • Non-employee Compensation (1099-NEC): Are provided for nonemployee compensation to independent contractors or self-employed persons who earned over $600 from a business entity that is not a C-corporation. These, also, must be provided to the income earner by January 31st.
  • Miscellaneous Income (1099-MISC): Miscellaneous income including rental income and attorney payments.
  • Rental Income: Income generated by rental property. The information needed includes the profit/loss generated, address of rental property, and a depreciation schedule.
  • Business Income: The income and expenses of a self-employed business owner. Most sole proprietors report their income and expenses on the Schedule C of their individual tax return. The information needed includes: the profit/loss generated by the business, address, EIN number, depreciation schedules, deductible business meals, business mileage driven, and business use of home information, if any.
  • Investment Income from Partnership or Corporation (K-1): K-1 reports the incomes, losses, and dividends of a business's partners or an S corporation's shareholders. This tracks each partner's basis in the business and any distributions or contributions to the partnership.
  • Farm Income: Income or losses from farming or rental of farmland will be reported on Schedule F.
  • Investment Income (1099-INT,-DIV, -B, etc.): Money earned from an increase in value from investments. This includes bank interest earned on a savings or money market account, dividends paid on stock, and capital gains from property sales.
  • Income from Real Estate Sales (1099-S): Income from sale of real estate. In order to report the gain or loss of the sale properly, the basis and improvements made to the property must be provided. If the property sold was previously used as rental property or business use of home that was depreciated, the prior year’s depreciation must be provided in order to recapture the depreciation.
  • Retirement Income (1099-R): Distributions from and income from annuities, retirement or profit-sharing plans, insurance contracts, IRAs, etc. These can be fully or partially taxable. 1099-R's will provide amounts of federal and state tax withholdings, if any.
  • Social Security Benefits (SSA-1099): Total amount of benefits received from Social Security.
  • Gambling or Lottery Winnings (W-2G): Any winnings from gambling or lottery.
  • Distributions from an HSA, MSA, or disability payments (1099-SA): Distributions from medical savings account or disability income. If you have received distributions from a medical savings account, the amount used to pay for qualified medical expenses will need to be disclosed.
  • Taxable Alimony received from divorces finalized before January 1, 2019: Alimony received on divorces finalized before January 1, 2019 is taxable. Alimony received after January 1, 2019, is no longer considered taxable income, nor is it considered tax-deductible for the payer.
  • Income from Jury Duty: Income from participating in jury duty.
  • Income from State or Local Tax Refunds (1099-G): Income from state refunds. If you claimed itemized deductions on your prior year tax return, income from state refunds may be taxable.
  • Unemployment Compensation (1099-G): Includes unemployment benefits paid by state unemployment insurance, railroad unemployment compensation, unemployment assistance under the Disaster Relief and Emergency Act of 1974, and Federal Pandemic Unemployment Compensation provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020.
  • Distributions from College Savings Accounts (1099-Q): Total distributions, amount used for qualified tuition and related expenses, and the total value of the account.

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Deductions and Tax Credits

Tax deductions and credits reduce your tax owed and will also require certain documentation. Taxpayers may elect to take the standard deduction (detailed below) or an itemized deduction, if greater than the standard deduction.

The standard deduction is $12,400 for single persons or married filing separate, $24,800 for married filing jointly, $18,650 for head of household, $14,050 for single seniors, or $27,400 for married seniors filing jointly.

If your itemized deduction would be greater than your standard deduction, you’ll want to explore taking an itemized deduction. Here's a list of all the qualifying itemized deductions:

  • Medical Expenses: Medical and dental expenses, prescriptions, long term care premiums paid, and medical mileage driven are deductible when they account for more than 7.5% of your adjusted gross income.
  • Taxes Paid: Deduct up to $10,000 on State or local income taxes, sales tax, property taxes, personal property taxes, or taxes paid with prior year tax returns.
  • Home Mortgage Interest and Points: Deduct the amount of interest paid on your mortgage loan.
  • Points Not Reported on Form 1098: Amortization of refinance points.
  • Prepaid Mortgage Insurance Premiums: Deductible if your adjusted gross income is less than $109,000 if certain requirements are met.
  • Investment Interest: Investment interest is deductible to the extent of your net investment income.
  • Cash and Non-Cash Gifts to Charity: Cash and non-cash gifts that are given to qualified organizations or volunteer miles driven can be deducted at $0.14 per mile.
  • Gambling Losses: Gambling losses can be deducted to the extent of gambling wins.
  • Casualty and Theft Losses Caused by a Federally Declared Disaster: Losses that were not recovered through a claim for reimbursement.
  • Child Tax Credit: Credit of up to $2,000 per child under 17 years of age. Other dependents including children aged 17-18, and full-time college students aged 19-24 that receive support from the parents can receive a credit of up to $500 per child.
  • Child and Dependent Care Tax Credit: Up to $3,000 of dependent care costs for children under 13 or spouses and parents that require care.
  • Adoption Credit: May receive a credit up to $14,080 in adoption costs per child.
  • Student Loan Interest: Deduct up to $2,500 of interest paid on student loans from your income.
  • Educator Expenses: Qualified educator expenses can be deducted up to $250 of business expenses.
  • College Expenses: Qualified college expenses can earn tax credits using the American Opportunity Tax Credit (up to $2,500 per eligible student) or the Lifetime Learning Credit (up to $2,000).
  • Earned Income Tax Credit: If your income falls below the threshold, you may receive the Earned Income Credit depending on your marital status and number of dependents.
  • Health Savings Account Contributions: Contributions to an HSA, MSA, or other qualified health savings accounts.
  • Moving expenses for the Armed Forces: Moving expenses incurred from being required to move for the Armed Forces.
  • Self-Employed SEP, SIMPLE, and Qualified Plans: Persons who are self-employed and make contributions to qualified savings plans may receive a credit for these contributions.
  • Self-Employed Health Insurance Deduction: Persons who are self-employed may deduct insurance premiums paid.
  • IRA Deduction: Contributions made to an IRA or Roth IRA.
  • Self-Employment Credits: Up to 50% of what you pay in self-employment tax can be credited.
  • Recovery Rebate Credit: Economic Impact Payments that were not received by individuals as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
  • Foreign Tax Credit: Foreign tax paid on foreign investment income.
  • Residential Energy Credit: Qualified costs of installing energy efficient equipment such as solar electric property, solar water heaters, geothermal heat pumps, small wind turbines, and fuel cell property, can be deducted.

Other Taxes 

  • Additional Tax on IRAs, and Other Qualified Retirement Plans: An additional tax of 10% will be imposed on early distributions from qualified savings plans.
  • Household Employment Taxes (Schedule H): Report household income taxes if you paid cash wages to a household employee and the wages were subject to social security, Medicare, federal unemployment, or if you withheld federal income tax. 

Whew—still here? Great, because having all of this information as you head into tax season will help you navigate your filing like a pro. (As a reminder, individual tax returns are due April 15; keep in mind that procrastination is not your friend when it comes to taxes.)  

For more advice from tax experts who are specifically versed in the world of financial planning, check out XY Tax Solutions and learn more about how we can help make this a wonderful time of the year for you, too!

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Chelsey PateraAbout the Author
Tax Specialist Chelsey Patera is a recent graduate of Montana State University with a bachelor’s degree in business and a focus in accounting. She's a Bozeman native with strong ties to the community. While in college, Chelsey interned with Franks and Associates, CPAs. She right at home on the XY Tax Solutions team, where she showcases her tax expertise on the daily.

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