Let's be honest: taxes are a topic that most people hate to think about, especially if they end up owing money in back taxes every year. This is why so many taxpayers wait until the last minute to prepare for tax season. Unfortunately it's also why there are roughly 14 million Americans that find themselves receiving love letters from the IRS and losing sleep due to some sort of collection proceedings.
The new Biden administration is now in the White House so more tax changes are almost guaranteed. You can see some of the things that have been proposed here in The 2020 Presidential Results and Your Taxes . Then there is COVID relief that you have to account for, and things are changing almost daily. So it's never too early to start preparing for tax season.
Bowens Tax & Bookkeeping Solutions specializes in helping people resolve their IRS issues, but we believe in preventative care as well and the best tax resolution is simply doing it right ahead of time.
In effort to help minimize your tax headache, I wrote this article to help you avoid tax trouble. Here are three simple steps that all taxpayers can do to prepare to file this tax season.
Note: If you are already getting love letters from the IRS or state because you have a tax debt of $20,000 but can’t pay in full, contact our firm today. We help people find tax relief, file years of unfiled tax returns, and sometimes settle their tax debt for a fraction of what’s owed https://bookingbowens.as.me/taxrelief. We'd love to see if we're a good fit to help you but you have to take the first step and book the call.
1. Get Your Documents Organized
Moliere is quoted as saying, "Unreasonable haste is the direct road to error." This is especially true when it comes to filing your taxes. You make tax season harder on yourself when you wait until the last minute to find all of your paperwork and errors are bound to happen.
It’s best to start organizing your financial information you need for tax time throughout the year rather than at the last minute to ensure that you don't miss anything. I provide my tax clients with digital tax organizer that helps them know exactly what I'm looking for and I tell them how to track it throughout the year.
Below is a brief checklist of some of the things I tell them to gather for the end of the year and to track during the year.
Income from your salary/main job via a W2 (keep check stubs to ensure W2 is correct)
1099 income you might have earned throughout the year on any side gigs or one-off projects (Track this throughout the year to ensure this document is correct. 1099 income is reported on a Schedule C, the same Schedule used for small businesses. The IRS has announced there will be more in Small Business Audits in 2021.)
Cryptocurrency account statements
Savings account that earn interest
Any asset sales (House, car, stocks, etc.)
A list of qualifying expenses and deductions you think you qualify for with proper documentation. Contact your tax expert for a list of expenses and deductions you can take. If you're searching for one book a free call with us by calling 502-632-3171 or visiting our appointment calendar.
Failing to report income or having questionable expenses are two of the biggest pitfalls we see with taxpayers who find themselves in tax debt or getting audited. Make sure you have documentation for everything. Documentation, documentation, documentation...is the key staying out of tax trouble and getting out of tax trouble.
Another factor that’s changing things for the 2020 tax season is COVID. Make sure to document your financial situation and how it was affected by COVID, this could lead you to find tax relief as things continue to evolve whether you are a business owner or not.
2. Know Your Tax Obligations, Filings And Compliance
Knowledge is power! If you know what your tax obligations are you can stay ahead of the game by making sure that you meet them. It is essential to start working on your tax obligation management early on, especially if you're a business owner.
You most likely wear many hats in your life and business so taxes are getting kept on the backburner. This is how things begin to fall through the cracks. Business owners at this time should not only consider income taxes but also employment taxes, self-employment taxes, sales tax (if applicable), and local taxes.
You should have already had your employees fill out new W-4 forms and have all your contractors turn in their W-9’s so you can provide them with 1099’s, but there's a chance they may not have turned them in yet. Ensure that this is taken care of as early as possible. If your employees are unsure of how to properly fill out their W-4s you can share this with them as a resource: How to Properly Fill Out A W-4 and Avoid Owing the IRS.
3. Ask Questions and Be Proactive
ASK QUESTIONS! This step is crucial to your success. You may not feel comfortable doing it but it is important to ask the basic questions to your tax professional. They don't know what you don't know and often times, probably with no ill will intended they don't tell you something because they don't know that you don't understand.
Some questions to ask are: What types of receipts should you be saving? What will happen if I hire additional employees this year? What if I owe back taxes and can’t pay? Your tax professional should do more than just take the information that you provide and file your taxes. If you owe back taxes and know you won’t be able to pay, and if your tax professional doesn’t have good answers, it could be time to consult a professional tax relief firm like ours.
A tax resolution firm like ours has experience helping taxpayers just like you resolve IRS and State tax problems and negotiating the best deal for you. If you’ll owe the IRS money for 2020 or prior years check out this video below to find out some things you should know.
Timalyn Bowens: 4 Things You Should Know if You Owe the IRS
The good news is the IRS has several debt settlement options including their Fresh Start Initiative . Contrary to popular belief they aren't set out to ruin your life (although they will!) and they generally are willing to settle with taxpayers who have been blindsided by a surprise tax bill and can’t pay it off in full.
I hope tax season doesn't hit you too hard! I always tell my clients to prepare for the worst case scenario (documentation, documentation, documentation...remember?) and be prepared for the unexpected. The new tax bill has unleashed a host of unintended consequences, including smaller refunds and surprise tax bills.
By being prepared, you can reduce the shock of a surprise tax bill and continue to live your life as you please.
How prepared are you for this tax season?
Timalyn S. Bowens EA is Your Favorite EA and Louisville's Tax Expert that will work hard to find a legal solution that is customized for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax & Bookkeeping Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with tax preparation, tax representation, tax planning, and more. Visit our website at www.bowenstaxsolutions.com for more information.