- Tax filing season opens in a little less than two weeks. Friday February 12, 2021 is the first day that the IRS will begin to accept tax returns filed by taxpayers for the 2020 tax year. If you have all your tax documents early and are due a refund, get your tax return submitted to the IRS soon and beat the filing season rush.
- Do you need to file a tax return for your children or your parents this year? Save money by filing their taxes yourself using the IRS on-line service. The IRS offers free e-filing for taxpayers on their website. To qualify for this service, your income needs to be $72,000 or less. You can even prepare your state income tax return through this site as well. The link to the IRS Free E-file is:
Free File: Do your Federal Taxes for Free | Internal Revenue Service (irs.gov)
- Another taxpayer convenience offered by the IRS on their website is the option to pay federal estimated tax payments directly online. Taxpayers can set up a direct debit payment to be paid straight from their bank account via EFT. Go green and avoid the trip to the post office. The link to pay your federal estimated tax payment online electronically is:
Direct Pay | Internal Revenue Service (irs.gov)
- If a taxpayer finds themself owing more in federal taxes than expected when their tax return is completed, or as a result of a tax notice or audit, the IRS allows taxpayers to set up a monthly payment plan to pay off their remaining tax balance due over time. Taxpayers can quickly set up an IRS Installment Agreement to make monthly payments until their tax balance owed is paid off. The IRS accepts the monthly payments either by check ($149 IRS set up fee) or via direct debit ($31 IRS set up fee) from the taxpayer’s bank account. A federal tax payment plan can easily be applied for and set up if needed on the IRS website at the following link:
Online Payment Agreement Application | Internal Revenue Service (irs.gov)
The audit rate of personal income taxes continues to be low, hovering at around 0.5% of all personal tax returns filed each year based upon the past few tax filing seasons. However, the chance of being audited is real and the chance of receiving an IRS notice is more common than you may think. Keeping good records and not forgetting to report taxable items on your tax return will help to minimize the risk of being the subject of an IRS audit or receiving a tax discrepancy notice. With tax filing season just around the corner, we have compiled a list of “helpful hints” for taxpayers to follow when organizing their tax documents this winter to assist in reducing the risk of receiving one of those unwanted IRS letters.
Keys to minimize IRS Audit Red Flags
- Don’t report Schedule C collections that total less than the sum of all your 1099-NEC’s reported to you.
- Avoid reporting 3 consecutive years of losses on a Schedule C.
- Don’t be over aggressive reporting auto (100% business use), travel and meal expenses on your Schedule C.
- Avoid showing all tax-deductible expenses in round numbers ($X,000).
- Report all your cryptocurrency transactions (new on the IRS’s radar for 2020 tax returns).
- Report foreign investments owned as well as gifts and bequests received from foreign sources.
Keys to minimize IRS Tax Notices
- Be sure to report all W-2’s received.
- Don’t miss reporting stock sales reported on your year-end 1099-B.
- Keep accurate records of all your self-employment (1099-NEC) income – don’t miss reporting one on your tax return and under report total income received.
- Report your 1099-Q’s (qualified education distributions).
- Report Health Savings Account distributions, even if properly used for qualifying medical expenses (Form 1099-SA).
- Report the sale of your residence, even if the sale meets the capital gain exclusion rules (Form 1099-S).
- Correctly report your estimated tax payments.