Getting Ready for Taxes – Filing for Tax Year 2019
If you want to increase the chances of a smoother process of your 2019 tax returns, now is the time to act to avoid a surprise at tax-time.
Here are 9 things you can do to prepare for the 2020 tax season ahead:
- Adjust withholding or make estimated or additional tax payments if necessary. The IRS is urging everyone to use the Tax Withholding Estimator to perform a paycheck or pension income checkup. This is even more important for those who received a smaller refund than expected or owed an unexpected tax bill last year.On the Tax Center of my website, I have a Calculator Page and if you scroll down, you’ll find a link to “Should I Adjust My Payroll Withholding”
- It’s also a good idea to reflect on any life events that took place this year, such as as getting married, getting divorced, having or adopting a child, retiring, buying a home, starting college, or one of your dependents starting college, starting a business or side-hustle, etc. On My Life Events page, you will find answers to many frequently asked questions.
- If it appears that you haven’t had enough taxes withheld, consider completing a new W-4 form with your payroll department.
- Taxpayers who receive a substantial amount of non-wage income should make quarterly estimated tax payments. This can include self-employment income, investment income (including gain from the sale, exchange or other disposition of virtual currency), taxable Social Security benefits and in some instances, pension and annuity income. Making estimated tax payments can also help a wage-earner cover an unexpected withholding shortfall. (If you need professional help with this task feel free to contact me for assistance.)Estimated tax payments are due quarterly, with the last payment for 2019 due on Jan. 15, 2020. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to help figure these payments. Payment options can be found at IRS.gov/payments.
Workers and retirees who receive self-employment income or income from the gig economy, including payments in the form of virtual currency, should make sure to take these amounts into account. According to the IRS.gov website, payments received in virtual currency by independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC. Similarly, wages paid using virtual currency are taxable to the employee, subject to withholding, and must be reported by the employer on a Form W-2.
People with more complex tax situations should consider reaching out to a qualified tax professional or use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes those who owe alternative minimum tax or various other taxes, and people with long-term capital gains or qualified dividends.
- Gather documents and organize tax records.The IRS is starting to urge all taxpayers to develop a recordkeeping system − electronic or paper − that keeps important information in one place. Keep copies of filed tax returns and all supporting documents for at least three years. This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, other income documents, records documenting all virtual currency transactions, and Forms 1095-A for those claiming the Premium Tax Credit. Add tax records to the files as they are received. Having complete and timely records can help any taxpayer file a complete and accurate return.
- Taxpayers should confirm that each employer, bank or other payer has your current mailing address or email address. Typically, year-end forms start arriving by mail – or are available online – in January. Review them carefully and, if any of the information shown is inaccurate, contact the payer right away for a correction.
- To avoid refund delays, be sure to gather all year-end income documents before filing a 2019 return. Filing too early, before receiving a key document, often means a taxpayer must file an amended return to report additional income or claim a refund. It can take up to 16 weeks to get an amended return refund.Notify the IRS of address changes and notify the Social Security Administration of a legal name change to avoid refund delays.
- Renew expiring tax ID numbers. Taxpayers with expiring Individual Taxpayer Identification Numbers can get their ITINs renewed more quickly and avoid refund delays next year by submitting their renewal application soon.An ITIN is a tax ID number used by any taxpayer who doesn’t qualify to get a Social Security number. IRS.gov has reported that any ITIN with middle digits 83, 84, 85, 86 or 87 will expire at the end of this year. In addition, any ITIN not used on a tax return in the past three years will expire. ITINs with middle digits 70 through 82 that expired in 2016, 2017 or 2018 can also be renewed.
The IRS urges anyone affected to file a complete renewal application, Form W-7, Application for IRS Individual Taxpayer Identification Number, as soon as possible. Be sure to include all required ID and residency documents. Failure to do so will delay processing until the IRS receives these documents.
Once a completed form is filed, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS. But it can take longer — nine to 11 weeks — if an applicant waits until the peak of the filing season to submit this form or sends it from overseas.
Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. With nearly 2 million taxpayer households impacted, applying now will help avoid the rush as well as refund and processing delays in 2020. For more information, visit the ITIN information page on IRS.gov.
- Be prepared to file electronically and use Direct Deposit for refunds. Filing electronically is easy, safe and the most accurate way to file taxes. Combining Direct Deposit with electronic filing is the fastest way to get a refund. With Direct Deposit, a refund goes directly into your bank account. No need to worry about a lost, stolen or undeliverable refund check.
Btw, by law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.
The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. For example, the IRS, along with its partners in the tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.
More than likely one or two things in the list above will apply to you and I hope that I’ve provided you with some good action steps you can take. If you need assistance, feel free to email me. I service Entrepreneurs and Individuals across the United States. I may or may not be a good fit for you, but send an inquiry email anyway.
IRS Website for Managing Taxes After Life Events
As a Tax Strategist, Consultant and Educator, I’ve been helping other Entrepreneurs (and Individuals) around the U.S. just like you, save thousands of their hard-earned tax dollars, increased their refunds, and solve multiple tax problems. Beyond taxes, I am your “GPS” to starting and growing your own business. Be sure to download my ebook Taxes & The New (or “Early-Stage”) Entrepreneur: What You Need to Know