Taxpayers and tax professionals can act right now to avoid any tax-time surprises and ensure smooth processing of their 2019 federal income tax returns, with these handy reminders and suggestions from the Tax Problem Solver Team and the Internal Revenue Service.
Adjust withholding
The Tax Withholding Estimator helps clients perform a paycheck or pension income checkup (especially important for those many who received a smaller refund than expected or owed an unexpected tax bill last year). It’s also a good idea to ping clients who had a key life event and remind them that if the estimator recommends a change, they can then submit a new W-4 or complete a W-4P.
Similarly, recipients of pension or annuity income can use the results from the estimator to complete a Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give it to their payer.
Make estimated or additional tax payments
Taxpayers and clients with substantial non-wage income might appreciate a reminder to make quarterly estimated tax payments on: self-employment or investment income (“including gain from the sale, exchange or other disposition of virtual currency,” the IRS points out this year), taxable Social Security benefits and, in some instances, pension and annuity income. The last payment for 2019 is due Jan. 15.
Clients with more complex tax situations will likely want to know about Publication 505, “Tax Withholding and Estimated Tax,” especially if they owe Alternative Minimum Tax or have long-term capital gains or qualified dividends.
Gather documents, organize tax records
The IRS urges 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 and clients should also confirm that each employer, bank or other payer has a 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 2019 federal income tax returns. 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.
Renew PTINs and ITINs
Tax preparers have until Dec. 31, 2019, to renew or register for PTINs for the 2020 season. Enrolled Agents must also have a PTIN and renew it annually.
Clients with expiring ITINs can get the numbers renewed more quickly and avoid refund delays by submitting their renewal application soon. Any ITIN with middle digits 83, 84, 85, 86 or 87 expires at the end of this year. Any ITIN not used on a 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. Use a W-7; it typically takes about seven weeks to receive an ITIN assignment letter from the IRS, but it can take up to 11 weeks if an applicant waits until peak season to submit the form.
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.
Update e-Services information
E-Services offers the e-file app, the Transcript Delivery System and a secure mailbox. Tax professionals who are new e-Services users must first register and verify their identities. Firms that will need to use the e-Services TDS should ensure the appropriate people are approved on the application. Firms opening new offices where electronic transmissions will occur also must submit new e-file applications.
Update power of attorney/third-party authorization records
Tax pros who have existing power of attorney or third-party authorization (Forms 2848 and 8821) for clients should review those records. If the taxpayer is no longer a client, tax pros should submit revocations to end the authorization. They can follow the revocation instructions outlined in Publication 947.
Review security safeguards
All paid tax preparers, regardless of firm size, must have written information security plans as required by the Federal Trade Commission.
Now is also a good time for tax professionals to hire a cybersecurity expert to review office digital safeguards. At a minimum, tax pros should perform a deep scan for viruses on all digital devices.
Review Practitioner Priority Service options
The Practitioner Priority Service (PPS) is any tax pro’s first point of contact for account-related issues. After registering, tax pros can receive account transcripts, wage and income documents, tax return transcripts and verification of non-filing letters online.
Identify the local Stakeholder Liaison
The IRS has specialists nationwide who can help tax pros who suffer a security breach that affects their clients. When a data theft occurs, they should contact the local IRS Stakeholder Liaison immediately.
Use e-file and direct deposit
Combining direct deposit with e-filing is the fastest way for your client to get their refund. Nearly four out of five federal refunds are deposited directly — though remind clients not to rely on a refund by a certain date, especially when making major purchases or paying bills.
Direct Deposit is easy to use. Taxpayers select it as their refund method through tax software or they should let their tax preparer know they want direct deposit. Taxpayers can even choose Direct Deposit on a paper return. Be sure to have bank account and routing numbers handy and double-check entries to avoid errors.
Direct Deposit also saves taxpayer dollars. It costs the nation's taxpayers more than $1 for every paper refund check issued but only a dime for each Direct Deposit.
Refund delays for EITC or ACTC claimants
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 2019 federal income tax returns may require additional review and may take longer. For example, the IRS, along with its partners in the tax industry, continues to strengthen security reviews to help protect against identity theft and refund fraud.
The Tax Problem Solver Team is always here to help!
Remember, my Team and I are always here to help YOU! If you have any tax questions or issues for yourself or any clients, call me at 855-BEAT-IRS, or email me at larry@taxproblemsolver.com and we can discuss and get to the bottom of them.
