Are You Ready for Tax Day? Here’s What You Need to Know Before You File

Tax day is quickly approaching, and it’s time to get organized.

Why it matters: New tax rules might make it worth your while to itemize rather than take the standard deduction this year. And don’t just file away your 1099 forms—they can offer valuable insight into your portfolio’s tax efficiency.

Christine Benz, Morningstar’s director of personal finance and retirement planning, discusses what you need to consider before, and after, you file.

8 Questions on Getting Ready for Tax Day

1. We are barreling toward tax day, which is also the due date for IRA and health savings account contributions for 2025. Is there a reason to wait until the last minute to make those contributions?
2. Part of getting ready to file your taxes is deciding whether to itemize or claim the standard deduction. Why might choosing to itemize might be a more attractive option this year?
3. Do you have any tips for someone who wants to itemize but can’t track down their receipts?
4. Someone who chooses the standard deduction may qualify for some additional deductions. What are they?
5. Investors should have already received their 1099 forms. It can be tempting to just use them to prep your taxes and move on, but you think 1099s can yield some valuable insights. Let’s start by discussing what an investor can learn about their dividends.
6. Capital gains are another line item on the 1099-Div form. What should investors be thinking about there?
7. Also part of the 1099 form are tax-exempt interest dividends, like what you’d receive from municipal bonds (or a muni-bond fund). Does it make sense for everyone to maximize their tax-free income?
8. It might feel good to get a check, but receiving a large tax refund isn’t actually a good thing. Why is that?

Key Quote on Getting Ready for Tax Day

Use those 1099s to up your game on investing. When you’re looking at dividends, a fork in the road that you’ll see, you’ll see all your dividends that were paid out. And then you’ll see those that were qualified, count as qualified. Those qualified dividends are what you’re going for. Because if you have the holding in a taxable account, they’re eligible for a tax rate equivalent to the long-term capital gains rate. So, that’s 15% for most investors. If it’s a nonqualified dividend that’s getting paid out to you, that’s going to be subject to your ordinary income tax rate, much higher level—so, that’s an asset-location problem. If you have a lot of those nonqualified dividends, and REITS are a good example of a security type that pays out nonqualified dividends, you’d want to take care to silo them within some sort of tax-sheltered account, where you’re not paying that full freight on those distributions as they get paid out to you.

The Takeaway: Thanks to a higher cap on state and local tax deductions, you might want to take a look at whether itemization might be within reach for you this year. Christine suggests acting like you’re going to itemize on an ongoing basis, so you keep track of your receipts and avoid the paper chase. But even if you take the standard deduction, there are other deductions that you may be able to claim when you file. As you collect your tax documents, use your 1099 forms to gain valuable insight into the tax efficiency of your portfolio.

More From Morningstar on Tax Planning

Read about four strategies you can use to get organized this tax season. Plus, Sheryl Rowling outlines the red flags to look out for from last year’s tax return and how to fix them. It’s not too late to check off these financial to-dos to start the year. Already retired? Make sure you have a tax-smart plan for in-retirement withdrawals.

In case you missed it: Denise Appleby, “The IRA Whisperer,” explains how to avoid IRA distribution mistakes, so you don’t get taxed twice.