12 Dec 5 Tax Prep Tips for 2020
From new year resolutions to frigid temperatures in most of the U.S. — oh to be in Florida right now! — January is a month full of preparation. We prepare to head to the gym, we prepare to eat healthier, and we prepare to bundle up as much as comfortably possible.
But there is another reason to get into “get ready” mode in January – tax season. Tax season is when most of us expect to receive documents in the mail so that we can file a return in hopes of receiving a refund. Should we owe taxes, we pray the tax bill is offset by as many deductions as possible.
It helps to already be prepared with receipts in tow and documentation that shows a gift you’ve made is in fact deductible. It also helps to focus on other ways to file deductions (for example, if you own a business or consider yourself an Independent Contractor, several write-off options are available; contact a tax professional to see what you’re able to deduct). This allows you to make the upcoming tax season a tolerable one, at the very least.
How should you approach tax time? Here are five tax-preparation tips for the upcoming season.
You’re probably running out of time if you’re not organized by now, but this depends on how unorganized you are. It’s not too late to get a folder, a box or an electronic file system to store tax-related documents, such as receipts and medical expenses. Many companies will provide you with transaction details for a payment you’ve made to them, but it could take time. You can also check your online account of a retail site such as Amazon to obtain payment details, for something you’ve purchased to use for business purposes — a computer comes to mind.
A tax preparer can assist you with gathering the right documents to make filing your return easier.
Check out your paycheck
In 2017, the Tax Cuts and Jobs Act passed, making withholding amounts greater for many taxpayers. However, the IRS took more time in revising the withholding tables than expected, which rendered some details on the return outdated. This means you should check the amount of withholding on your paycheck stubs. You might owe the IRS more money during tax season if there isn’t enough tax being withheld. On the other hand, if there is too much tax being withheld, Uncle Sam will owe you a refund. To ensure you’re withholding the amount you want — ask yourself – do you want your money sooner or later — contact your employer’s Human Resources department to adjust. Doing this is an absolute must if you’ve gotten married this year and have chosen to file jointly or have made other changes that could affect your filing status.
Don’t take the phishing bait
Phishing scams are designed to get people to provide personal information, such as a social security number or a bank account number. Phishing is usually done via a phone call, where callers oftentimes target seniors who may be lonely and welcoming of any phone calls. Phishing also comes in the form of an email, complete with what may look like an official email address and a link that users would click to what could resemble a legitimate website. These websites might mimic your bank or credit union, a government agency, such as the IRS, a private tax office, such as H&R Block or even someone you might know personally — someone whose computer may have been hacked.
There are several ways to stop phishing dead in its tracks. For starters, the IRS will never make demanding calls for immediate payments. The agency will never require a prepaid debit card to make such payments either. The IRS does not threaten taxpayers with warnings about contacting “local authorities” like the police, for a payment. And as the IRS will accept payments via USPS or, via your accountant’s office or online on an e-file platform such as TurboTax, they will not require that payments be made in person and/or in cash. Should you have any questions or concerns about phishing scams, you can visit IRS.gov to check the status of your tax refund and to find contact information to call the agency.
Mind your medical costs
Qualified medical expenses can be deducted on your tax return if they exceed 10 percent of your annual gross income. For example, if your annual gross income is $40,000, anything above $4,000 in qualified medical expenses (or 10 percent of your income) is deductible. You must itemize your medical expenses in order to qualify for a medical deduction. Some of the medical expenses that might be included in a medical deduction include payments to doctors, prescription drugs, x-rays or other lab services, diagnostic testing and more. It’s best to contact your tax professional to know exactly what you can deduct on your return.
Understand the following if you expect a refund
Many people expecting a certain amount in a tax refund find themselves frustrated when their IRS check or direct deposit arrives. Be sure you understand what might decrease, delay or reverse your tax refund. If you engage in end-of-year transactions, such as holiday bonuses, holiday contributions, stock dividends, or real estate sales, you might not be able to receive credit for them in time. The biggest surprise is nothing received, however. If you owe taxes from previous year, owe child support, have to repay any state or federal agency (such as an unemployment compensation debt), or owe a federally-backed student loan, the refund payment will be intercepted by the agency or organization in which you’re indebted.
Again, you should reach out to a tax professional should you have any questions regarding a refund, or any taxes owed. You should also contact the IRS directly should you feel targeted by a phishing scammer or to obtain first-hand information about the latest tax laws, form updates, or anything else regarding the upcoming tax season.