Just like clockwork, tax season is upon us once again. Whether this is your first time participating in this rite of passage into adulthood or you have been navigating the process for more years than you care to admit, we have collected some information that might just make your life easier this time around:
1 - Get familiar with the process
If you have never filed taxes before, familiarize yourself with the basic relevant terms and important deadlines.
Every United States resident and citizen needs to file a tax return every year with the Internal Revenue Service (IRS). The 12-month period covered by a tax return is called a tax year. For example, tax year 2019 refers to the time period from January 1st, 2019 to December 31st, 2019 and most individuals have to file taxes for that period by April 15th, 2020.
The document most commonly used by individuals is IRS Form 1040: U.S. Individual Income Tax Return. Depending on the particular circumstances of your household, various additional forms may be needed. Although individual tax returns cover a calendar year (January 1st-December 31st), business tax returns may refer to either a calendar year or a fiscal year.
Fiscal years often do not correspond with calendar years so their start date can vary. You can access forms and corresponding instructions on the IRS website.
2 - Let the pros do the hard work
Use a tax preparer or accountant in order to avoid common mistakes and to ensure you are taking advantage of all the tax credits applicable to your household or business.
Special considerations may apply to certain situations while some kinds of partnerships and corporations may have filing deadlines other than April 15th. In some cases, extensions can also be granted.
Make an appointment to go over your forms and contact your tax preparer or accountant beforehand to confirm all the documents you will need to bring with you in order to avoid unnecessary delays.
Being proactive is always a wise approach to tax filing.
3 - Make sure your ITIN is valid
If you use an Individual Taxpayer Identification Number (ITIN) to file taxes in Massachusetts, make sure it is still valid.
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 tax year 2019 ITINs with middle digits 83, 84, 85, 86 and 87 will automatically expire if not renewed, so if you happen to be in this category submit your application for renewal (Form W-7) and the required documentation ASAP.
Filing your 2019 tax returns 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.
4 - Check your mailbox constantly
Never ignore letters from the IRS, even if the matter at hand appears to be trivial. If you receive a bill, there are multiple ways to apply for a payment plan in order to pay off outstanding balances efficiently.
Any IRS correspondence you ignore may cost you your right to appeal any decisions or requests which you feel are erroneous.
5 - Watch out for the bad guys
Be aware of tax scams and frauds. Phishing scams often take the form of a phone call, email, text or post on social media accounts from institutions you would normally trust.
The IRS always initiates contact with a taxpayer through a mailed letter, so if you unexpectedly receive a phone call from someone claiming to be the IRS consider it a scam – hang up and do not share any personal information such as full name, social security or taxpayer identification numbers, addresses, or birth dates.
6 - Don't go crazy with your refund
Do not use your newly issued tax refund to make an expensive purchase, such as a brand new luxury car.
If you are considering such a move, reach out to your insurance agent to ensure you select a car that fits into your income and budget in order to avoid needless financial hardship between car payments, maintenance, and auto insurance for your new acquisition.
Keep in mind that insurance premiums for policies such as homeowner’s insurance, auto insurance, or excess liability and umbrella insurance are not tax-deductible when they pertain to personal policies.
For example, the payments you make for a homeowner’s insurance policy that covers a home which you own and live in are not eligible for tax deductions. If, however, you own a property which you rent or otherwise use for business purposes, then the corresponding insurance premiums are tax deductible and categorized as business or rental expenses.
If you have any insurance-related tax questions, the BRZ team is always at your disposal to provide answers and assistance!
Filing your taxes correctly and in a timely manner benefits both you and the community when those tax dollars are eventually put to use for the public good.