Finance

Tips to Prepare for Tax-Filing Season

As the start of a new year in ushered in, it is a good idea to start thinking about how to handle federal and state tax returns. The IRS begins accepting 2020 returns on Jan. 27, 2021. Even if financial situations are simple and straightforward, it pays to make sure to be up-to-date and actively working to reduce tax bills, thus reducing anxieties associated with tax seasons.

DOUBLE CHECK YOUR PAYCHECK

If an insufficient amount of taxes are deducted from your paycheck, it’s a possibility to be required to invest a little more into Uncle Sam at tax time. If your contribution is excessive, a refund is the rewards — but, maybe a little money in your pocket every week is more sufficient than an annual repayment.

DECIDE WHO WILL PREPARE AND FILE YOUR TAXES

If major changes occurred in 2020 —marriage, divorce, or business startup—taxes may be more complicated and time consuming. As a result, the need to hire a CPA or other tax professional to prepare and file your taxes may be necessary.

Make provisions and decisions early on. Waiting until April could mean penalties.

Shelton Brown, CPA, MBA Chief Executive Officer ACTHR

SHIELD YOURSELF FROM TAX SCAMS AND FRAUDS

As tax season approaches, many people start receiving phone calls, emails and text messages from entities claiming to be the IRS. The most important thing is to disregard telephone calls or emails from those who pretend to be the IRS or the U.S. Treasury, governmental organizational entities such as these will send mailed correspondence rather than make direct phone contact, unless litigation is in order.

I warn against “shopping a refund” to find a preparer who promises a bigger refund. The tax preparer who makes that promise is likely to be unscrupulous and can cause trouble for both parties. MAKE SURE BENEFITS DESIGNATIONS ARE UP-TO-DATE

Beneficiary designations won’t affect taxes as of right now, but they will affect the taxes of heirs in the future.

The end of the year is a great time to review beneficiaries and make any changes that are needed.

Why is that important? Down the road, it will help minimize the taxes beneficiaries and heirs pay on assets after a death.

DON’T IGNORE THE IRS!

Taxpayers that don’t file returns and owe taxes, or that file but don’t pay taxes on time are at risk for serious penalties. The IRS can seize assets if necessary.

If the IRS has been sending you letters due to errors on a return or claim back taxes are owed, respond in writing — and don’t delay!

If correspondence is not received to IRS; it’s a loss, as simple as that. The IRS has strong lien and levy powers. Don’t be surprised if wages are garnished or a lien is ordered at a residence. It is very important to respond to all notices in a timely manner to avoid any mishaps. CONSIDER “BUNCHING” DEDUCTIONS

The standard deductions are nearly double what they were in times past, making it hard to itemize. The 2020 deductions are: $12,400 for individuals, $18,650 for heads of household, and $24,800 for married couples filing jointly. Taxpayers who don’t have enough deductions to surpass those thresholds take their standard deduction.

“Bunching” deductions is recommended to exceed the thresholds, if possible. Bunching is when timed expenses are pushed into the same calendar year as deductible expenses. This can be achieved by moving certain deductions, such as charity donations, or prepaying January’s mortgage payment forward in the current year.