Kenneth Schnall

Filing taxes for 2020

This weekend I filed taxes for the first time where I needed to report tax events that happened in 2020. It ended up being more confusing than I thought it would be. My goal with this post is to summarize how the process went in case it helps someone in a similar situation, or me in the future.

There are two things I'll point out first

  1. Some accounts or methods that I describe in this post might not apply to you, since they can depend on employer. All opinions in this post are my own, not my employer's.
  2. I'm summarizing my tax filing experience in this post. I'm not a tax advisor. Follow any suggestions at your own risk!

My 2020 tax events

Most of my 2020 tax events were reported in my "Consolidated Form 1099" from Fidelity. I got the form by going to Fidelity > All Accounts > Summary > Your 2020 Tax Information > View your tax forms.

Dividends

My Consolidated Form 1099 included form 1099-DIV.

Health Savings Account (HSA) contributions

In 2020 my employer and I contributed to my HSA. The total contributions were in box "12c W" of my form W-2.

Interest income

My Consolidated Form 1099 included form 1099-INT.

Mega Backdoor Roth contributions

In 2020 I made Mega Backdoor Roth contributions into my Roth 401(k). After maximizing Microsoft's match for my 401(k), I went to Fidelity NetBenefits to change my 401(k) contribution amount. I set my "PRE-TAX" election to 0%, updated my "AFTER-TAX (non-Roth)" election, and elected to "Convert My After-Tax Contributions" under the "DAILY ROTH IN-PLAN CONVERSION" section.

The information for my Mega Backdoor Roth contributions was in form 1099-R. I got this form from my Fidelity NetBenefits 401(k) section > Bank/Tax Information > TAX INFORMATION > "View 1099-R (PDF)" under 2020.

Stock sales

In 2020 I sold my on-hire stock (restricted stock units [RSUs]) and stock I acquired through Microsoft's employee stock purchase plan (ESPP). These sales were included in my Consolidated Form 1099's form 1099-B.

Filing taxes

I opted to use TurboTax Premier to actually file. I chose TurboTax Premier since that edition handles investments, and a financial advice wiki at work suggested TurboTax for handling ESPP stock sales. Also a tip for Microsoft employees, I heard you can get reimbursed for tax preparation software through Perks+! (Though it'll be taxed as income.)

The actual process was pretty straightforward with TurboTax. Just answer the questions until it comes time to enter information about investments.

When it's time to enter information about investments, change your Fidelity password to a temporary one, and sign in to Fidelity through TurboTax. TurboTax will parse your Fidelity account for the relevant tax forms. Once you're done with TurboTax, make sure to reset your Fidelity password.

You should review each of the tax forms that TurboTax found.

These are the forms I had to verify:

  • 1099-B (stock sales)
  • 1099-DIV (dividends)
  • 1099-INT (interest income)
  • 1099-R (Mega Backdoor Roth contributions)

For form 1099-B, TurboTax warned me about some of my stock sales that needed follow-up about cost basis adjustment. This is because the ESPP stock was offered at a discount. I could see these stock sales in my form 1099-B by searching "(e)".

TurboTax wanted the "Adjusted Cost or Other Basis (z)" for these stock sales. I found the values by searching my form 1099-B for "(z)".

Forms 1099-DIV and 1099-INT were straightforward, just double-checking the boxes that TurboTax asks you about.

Form 1099-R was straightforward too, just filling in TurboTax based on the boxes in the form. Though TurboTax did nag about how the "Taxable amount" was zero. Roth contributions are after-tax contributions after all.

I also received these forms but I didn't need them for filing:

  • 1095-C (health insurance coverage)
  • 3922 (transfer of stock acquired through ESPP)

Learnings

  • Keep track of when you sell ESPP stock or RSUs
    • Else just search Fidelity for the transaction when the stock was acquired
    • When filing, this helps you report what type of sale it was (e.g., ESPP stock or RSU)
  • If you don't sell immediately, then hang on to your ESPP stock until it's a qualifying disposition (at least 2 years) so it qualifies for favorable tax treatment