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As a new tax filing season approaches, we would like to draw your attention to the measures you can take now to ensure smooth processing of your 2016 tax return and avoid a delay in getting your tax refund next year.
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First of all, you have to make sure you have all the documents you need, such as W-2s and 1099s, before filing a tax return. You may also need a copy of your 2015 tax return to make it easier to fill out a 2016 tax return.
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Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity.
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Under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), any Individual Taxpayer Identification Numbers (ITIN) issued prior to 2013 or that haven’t been used for tax-years 2013, 2014 and 2015 will no longer be valid for use on a tax return as of Jan. 1, 2017.
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Those of you with expiring ITINs who need to file a return in 2017 will need to renew your ITIN. ITINs (Individual Taxpayer Identification Numbers) are issued by the IRS to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. This process typically takes 7 weeks to receive an ITIN assignment letter, but the process can take longer - 9 to 11 weeks if you wait to submit Form W-7 during the peak filing season, or send it from overseas. Taxpayers who do not renew an expired ITIN before filing a tax return next year, could face a delayed refund and may be ineligible for certain tax credits. For more information, visit the ITIN information page on IRS.gov.
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If you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on your tax return, the IRS must hold your refund until February 15. This new law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure that you receive the refund you are owed by giving the agency more time to help detect and prevent fraud.
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| You are being cautioned not to rely on getting a refund by a certain date, especially when making major purchases or paying bills. Though the IRS issues more than nine out of ten refunds in less than 21 days, some returns are held for further review. |
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| It is usually at tax time that you realize whether too much or too little money was withheld from your paychecks throughout the year. Therefore, if you find yourself owing money to the IRS each year for several years, there’s a very good chance that you simply need to adjust your withholding number on your W-4. |
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Review your paycheck to make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.
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If you are self-employed or have additional sources of income, make estimated tax payments. In addition to being more palatable than one giant lump-sum tax payment in April, doing so may actually help you lower your overall tax bill by avoiding estimated tax penalties.
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| Also, some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay. |
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| Organize your record-keeping. Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time. If you have someone who prepares your taxes, organization can save you not just time, but money. If you have your ducks in a row, that means less time your tax preparer needs to spend looking for information, which should mean a lower rate to prepare your return. |
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| At the same time, many people claim the standard deductions because they did not have their records in order or because it is just easier. Consider itemizing deductions and, for this too, you need to get your records organized and keep a record of each charitable contribution you make, or medical expenses as well as business and vehicle expenses. Most of the times people just pick up a receipt that could be a potential tax deduction or liability and toss it down in a drawer, purse, or glove box. |
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To make your mountain of documents easier to store, try scanning them and keeping them as PDF files. This way you can print them out if you need them. If you do this, remember to back up your computer as well.
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Here are some examples of tax-related documents that you might want to keep:
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W-2 forms;
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Pay stubs for the year;
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Mortgage payment stubs and/or home purchase closing statement;
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Last year's tax return (for quick reference and comparison);
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Receipts from anything you might claim as an itemized deduction;
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Receipts from any charity (e.g. for church tithes, disaster relief donations, etc.);
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Car mileage log and/or other car expenses in case of business use;
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Any receipts for business travel expenses;
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Canceled checks (especially for IRA contributions and other deductions);
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Credit card statements and bank statements (to verify any deductions);
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Medical bills (especially if they exceed 10% of your income);
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1099-G form for deducting state or local income taxes;
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1099 forms (for any income paid to you);
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Mobile phone bills (especially if you made charitable donations by text message). |
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Also, remember that the IRS recommends that you keep all tax-related records for 3 years in case of an audit.
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If you haven’t done so yet, now is a good time to shop for a tax professional before you're up against a deadline or anxious for your refund. You can get some helpful info on how to choose a tax professional by reading one of our recent newsletters on the subject.
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| You should also keep in mind that tax planning and tax preparation are not the same thing. Tax preparation tallies up your income, deductions, exemptions, credits, etc. and calculates the amount of tax you owe. |
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Theoretically it does not change your tax liability, it should just report your taxes accurately and properly. Tax planning, on the other hand, can help you change your tax liability in the future.
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| Good tax planning implies the systematic analysis of differing tax options aimed at the minimization of tax liability in current and future tax periods. Whether to file jointly or separately, the timing of a sale of an asset, ascertaining over how many years to withdraw retirement funds, when to receive income, when to pay expenditures, the timing and amounts of gifts to be made, and estate planning are examples of tax planning. Obviously, a good tax expert is a sure bet both for tax preparation and tax planning. |
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| Do not forget to come back every week for more news and useful information for your taxes and financial health. |
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