The El Camino Group - Tax Season Basics

March 06, 2019

The El Camino Group - Tax Season Basics


Tax Season Basics: Understanding Your Personal Income Taxes

While taxes may not be top of mind for much of the year, now might be a good time for a quick refresher on some important information that impacts how much you’ll owe Uncle Sam. Taxes impact nearly every aspect of your financial life­­­­­­, from your overall financial and investment strategy to how you choose to save for your most important goals, such as a dream vacation, retirement or your child’s education. Understanding tax concepts and tax planning strategies—and opportunities that may reduce your tax bill—will help you make the most of the money you’ve worked so hard to earn.

In order to plan for your tax obligations and take advantage of common tax strategies, you need to know what forms you will need, how different types of income are taxed and how your federal taxes are calculated.

Common Tax Forms

W-4 Form. This is the form your employer uses to determine what percentage of your pay will be deducted for taxes. Filling out your W-4 form correctly helps ensure you don’t underpay or overpay your taxes during the year.

W-2 Form. Your W-2 statement provides a breakdown of your earnings and the amount of taxes withheld from your paycheck for the year. If contributions to your retirement plan and health savings account were deducted from your paycheck, you will see this on your W-2, as well.

Form 1099-INT. If you received any interest income, it will be reported on this form.

Form 1099-DIV. If you received any dividend income, it will be reported on this form.

Form 1040. This is the official form used to file your individual income tax return each year.

How Income Is Taxed

Your taxable income includes more than just the money you earn at work. Taxable income can be divided into ordinary income and capital gains. Ordinary income includes the compensation you receive from your job, as well as interest income. Capital gains include money you make on selling an asset, such as stock or real estate, as well as investment property. If you lose money selling an asset, you incur a capital loss.

It is important to distinguish between ordinary income and capital gains or losses because these two types of income are treated differently for tax purposes. For capital gains, your tax will rate will depend on how long you held the asset. If the holding period was longer than one year, your capital gain or loss is considered long-term and is subject to a lower tax rate. If you have capital losses you can offset them against gains or against a maximum of $3,000 of ordinary income. If you still have capital losses left over, you can carry them forward to the next tax year.

How Your Taxes Are Calculated

Important components of your tax calculation include:

Gross Income. This includes all your income from all sources.

Adjustments to Income. These are deductions that reduce your gross income, such as traditional IRA contributions, student loan interest payments and contributions to a health savings account.

Standard or Itemized Deductions. These are deductions, such as medical expenses, mortgage interest and charitable gifts that reduce your taxable income.

Credits. These are credits that reduce your tax liability, such as child tax credits and education credits.

Tax Planning Strategies

There are a number of tax-deferred accounts that you may be able to use to set aside money for specific needs and to potentially reduce your liability. These include flexible spending accounts, health savings accounts, commuter accounts or commuter benefits programs, education savings accounts, employer-sponsored retirement plans and individual retirement accounts.

Another strategy that may help to reduce your tax liability is to maximize your contributions to your company retirement plan and/or your IRA(s).

With your permission, it is a healthy practice to have your wealth advisor work with your tax advisor to help ensure that your tax strategy aligns with your overall wealth management strategy and is tailored to your individual goals.



Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Angel Chavez, CIMA is a Wealth advisor in San Francisco at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). He can be reached by email at angel.chavez@morganstanley.comor by telephone at 415-984-6008.His California Insurance License # is 0E48771. His website is

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Angel Chavez may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where heis registered or excluded or exempted from registration,].

Courtesy of: Angel Chavez, CIMA Wealth Advisor with the El Camino Group

Branch Name: Morgan Stanley San Francisco

Phone Number: 415-984-6008

California Insurance License #: 0E48771

Web Address:

© 2018 Morgan Stanley Smith Barney LLC.   Member SIPC.   CRC 2289455 10/2018




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