10 Key Tips for Filing Your Tax Return
Before you file, read over these 10 tips to cover all the angles.
1. Filing an Extension
You can file for an extension of time to file your tax return for any reason, but there is no extension on the due date of any taxes you owe. If you think you will end up owing taxes once you complete your return, make sure you pay what you think you'll owe by the April deadline, then you can reconcile it once the return is complete. If you do not pay the tax you owe on the due date or you pay too little, you will pay interest on the underpayment and may have to pay a penalty. Remember that due dates for state income tax returns vary so check your state's deadline.
2. Document Charitable Contributions Scrupulously
Charitable contributions are getting more scrutiny from the Internal Revenue Service (IRS), so if you claim them as itemized deductions be sure you have written acknowledgment from the charitable organizations for contributions of $250 or more. The letter must include the name of the organization, description of the property or cash contributed, the value of any goods or services received in exchange for the contribution or the statement “no goods or services were received” and the date of the contribution. Contributions can only be claimed if they are made to qualified organizations. Use the IRS Exempt Organizations Select Check website to confirm that an organization is qualified. If the organization isn’t listed, you can contact the organization and ask for its most recent 501(c)(3) determination letter. If your contribution is for less than $250 be sure to keep a precise record to support your donation, such as a photo or list of what you gave, when and to whom (for example, if you drop clothing off in a bin).
3. New Due Dates for Some Returns
Some information forms that taxpayers need in order to file their tax returns may have different due dates than your individual tax return. Visit the IRS's website for more information.
4. When You Need to Amend (& When You Don't)
Receiving updated Forms 1099, Schedules K-1 and other information forms after you've already filed, are a major reason that taxpayers file amended tax returns. Know that if you find yourself in a situation where you receive corrected information returns after filing, you do not have to amend your return if the difference is no more than $100 in income or no more than $25 in withholding or backup withholding. Information returns with these "de minimis" errors will be considered as having been filed with the correct information and the IRS won't penalize you.
5. Don’t Overlook Disaster Losses
If you suffered a loss in a federally declared disaster area, the loss can generally be taken as an itemized deduction on your tax return, although you can no longer deduct just any loss due to theft or disaster – it must have been the result of a federally declared disaster. The loss must relate to your home, household items or vehicles and the amount you can deduct is reduced by any salvage value of your property and any insurance payment you received. Usually these losses are deducted on Schedule A of Form 1040 for the year in which they occurred although they may be taken in the year before the disaster if applicable. And, if your casualty loss is greater than your income, check to see if you qualify for a net operating loss. You don’t have to be a business to qualify for a net operating loss under these circumstances.
6. ID Theft Still a Big Risk
Tax season is bonus time for identity thieves. Vigilantly protect your personal and financial information. Never send your tax return information to a tax preparer electronically unless it’s encrypted or is being submitted to the preparer through a secure portal. Shred draft copies of your tax return. Be wary of phishing scams that may take the form of a phone call, email, text or post on your social media account from an institution you’d normally trust. The IRS’s first contact with a taxpayer is always with a mailed letter, so if you get a call from someone claiming to be the IRS out of the blue, it's a scam – hang up and don't give any personal information.
7. Private Debt Collectors on the Job
One relatively new change is that the IRS does now use private debt collectors for certain overdue federal tax bills. If your tax debt is turned over to the debt collection agencies, you will receive a letter from the IRS, and the debt collection agency will send another letter confirming that it is responsible for collecting the debt. The collection agencies are allowed to identify themselves as IRS contractors and must follow the rules under the Fair Debt Collection Practices Act. Any checks should be paid to the U.S. Treasury, not the private debt collection agency. If you have an outstanding federal tax bill, consider contacting the IRS to apply for an online payment agreement, to make an offer in compromise or to request a temporary delay in collection. It’s often wise to consult a tax professional who has experience with these programs if you’re in this situation.
8. Your ITINs May Have Expired
Taxpayers who use an Individual Taxpayer Identification Number (ITIN) may need a new one. ITINs expire if not used on a federal tax return at least once every three years and all ITINs issued prior to 2013 will have to be renewed on a rolling renewal schedule. For 2019 (for 2020 filing year), ITINs with the middle digits 83, 84, 85, 86 and 87 will automatically expire if not renewed, so if you’re in this situation, submit your application for renewal (Form W-7) and the required documentation ASAP. Filing your tax return without a renewed ITIN or without the renewal application will result in an adjustment to your return as filed. The return will be processed, but no refunds will be issued and any exemptions or credits claimed on the return will be denied. If tax is owed as a result of these adjustments, interest and penalties may be due. Read more about expiring ITINs on the IRS website here.
9. Get Your Answers From the IRS
The IRS offers an Interactive Tax Assistant that can provide you with many tax law questions to help ensure you are filing and paying correctly. This website has a list of the topics covered as well as a link to the tool.
10. Choose Your Tax Preparer Wisely
If you decide to hire a CPA or other tax professional to prepare your taxes, get referrals, verify their credentials, check to see if they have any consumer complaints filed against them, interview them, and ask them how they bill and inquire about how they secure their clients’ financial information. Make sure they have an IRS Preparer Tax Identification Number (PTIN). It’s required by law. If they don’t have one, walk away. Other red flags when looking to hire a tax preparer include not asking to see your prior year’s return, refusing to tell you how they bill, suggesting a tax credit or deduction that makes you uncomfortable, asking you to sign an incomplete or blank return or wanting your refund to be deposited into their bank account instead of yours.