Special Tax Forms 101

Special Tax Forms For Special Circumstances
Special Tax Forms For Special Circumstances

For most U.S. taxpayers the tax filing process is usually limited to the 1040-EZ or 1040 long form, used for the annual tax return in order to claim deductions and credits necessary to lower the amount owed in taxes and hopefully increase the amount of money due as a refund. In some situations however, your income and tax circumstances may require you to use additional or special tax forms to complete their tax filings.

Some of the more common special tax forms that you may come across as a taxpayer include the reporting form for the Alternative Minimum Tax or AMT (IRS Form 6251), a report of estate taxes (IRS Form 706) and reporting forms for the distribution of funds from a qualified retirement plan such as an individual retirement account (IRS Form 1099-R) or a contribution made to an IRA (IRS Form 5498). Here is a basic discussion of some common special tax forms, why they exist and how you might benefit from their use as a tax payer.

Alternative Minimum Tax (Form 6251)

The Alternative Minimum Tax or AMT impacts people with a higher income who would otherwise benefit from regular tax rates, and sets limits on those benefits. A filer with reportable income that may be subject to AMT reporting needs to fill out Form 6251. The AMT filing helps you determine whether you are subject to the lower tax benefits that apply to most taxpayers or if you are subject to AMT as a result of your income. The reason why this is important is because failure to properly report your income through the overuse of deductions as a high earner will result in a tax penalty that could exceed 10% on the amount of tax liability underreported, a harsh penalty indeed.

Estate Tax Return (Form 706)

If you are the executor or become involved in the estate of a loved one, you will be required to provide an accounting via Form 706, the U.S. Estate (and Generation-Skipping Transfer) Tax Return form. This form provides information on the value of the estate necessary for the IRS to determine the amount of tax liability owed. The form consists of a valuation of the fair market value of the estate in order to calculate the value of the gross estate. After certain deductions are taken, such as expenses for administration of the estate and the deduction of expenses related to debts and any outstanding mortgages, the taxable estate amount is determined. Failure to report any gains inherited through an estate will result in fines and penalties from the IRS, so it’s important to make sure to fill these forms out completely.

IRA Distribution Reporting (Form 1099-R) and IRA Contribution Reporting (Form 5498)

When you change a job or open an individual retirement account (IRA) with a brokerage firm, bank or other financial institution, you will receive either Form 1099-R (for the rollover of your qualified plan distribution) or Form 5498 (for an IRA contribution). These special tax forms are prepared on your behalf by the institution involved with the distribution of assets from the tax qualified retirement plan (1099-R) or any contribution you make to an individual retirement plan (5498). This includes contributions made to a regular or traditional IRA, rollover IRA, Roth and converted Roth IRA, Recharacterized IRA, Simplified Employee Pension (SEP) IRA and (Savings Incentive Match Plan for Employees) SIMPLE IRA. While contributions to retirement accounts are generally not taxed, distributions from these accounts are, so it’s important to make sure you fill out the appropriate forms.