The IRS has put together some tips to make filing your next return that much easier. Take a look at a summary below where we have highlighted the 8 tips you should be aware of prior to starting on your next tax filing:
1. Take Advantage of IRS Online Account Benefits
If you have a taxpayer identification number, you can create and access your IRS online account to electronically sign, approve, and view tax documents.
With an online tax account, you can also see your tax balance, check your refund status, read copies of notices the IRS has mailed to you, request tax transcripts, and apply for basic payment plans.
Instead of being put on hold when you call the IRS, get what you need faster by logging into your online IRS account.
2. Organize Income Statements
You’ll owe the IRS taxes for most income, from wages, gig payments (independent contractor, freelance, self-employed), and unemployment benefits to investment interest, dividends and distributions, and digital assets (cryptocurrency and NFTs).
Some of the tax documents you’ll need to report your income to the IRS include:
- W2
- 1099-K (Payment Card and Third-Party Network Transactions)
- 1099-NEC (Self-Employed Nonemployee Compensation)
- 1099-MISC (Miscellaneous Income from Rent, Prizes/Awards, Health Care Payments)
- 1099-INT (Interest Earned)
- 1099-DIV (Investment Dividends and Distributions)
- 1099-DA (Digital Asset Transactions)
3. Choose Direct Deposit to Receive Refunds Faster
If the IRS finds no problems with your tax return and you are owed a refund, the difference between having the refund electronically deposited or mailed could be up to 12 weeks. Once the IRS approves your refund, you could have that refund deposited into your bank account or on a debit card within 72 hours.
Be aware that taxpayers receiving a refund because they claimed the Additional Child Tax Credit (ACTC) or the Earned Income Tax Credit (EITC) will have to wait until mid-February before the IRS can issue those refunds.
Tax laws mandate that the IRS hold the entire amount of an ACTC or EITC refund until that time.
4. Request Tax Filing Extension
The IRS understands that unforeseen circumstances can prevent you from filing your taxes by the April deadline. Instead of filing late and incurring late fees and penalties, the IRS urges taxpayers to request an automatic extension to file returns.
You will then have until October to file without being hit with late filing fees. However, if you know you will owe taxes, the IRS expects taxpayers to estimate taxes owed and start making payments to prevent interest from accumulating on tax debt.
Note that the IRS doesn’t extend payments when you owe. Tax payments are always due by the April deadline.
In designated disaster areas, the IRS will automatically extend tax deadlines for individuals. Often times, this includes extensions for filing, paying, and making retirement contributions. This is different from when an individual requests an extension, which is just for filing taxes.
In 2023, the IRS extended tax dates for 2022 returns for many states with severe weather and other natural disasters, including California, Florida, Georgia, and parts of Hawaii. To see whether your state and county qualify for IRS disaster relief, visit https://irs.gov/newsroom/tax-relief-in-disaster-situations.
5. Know the IRS Delayed the New 1099-K ($600) Reporting Threshold
A 1099-K is a tax form used to report income received through certain types of payment card transaction and third-party network platforms, such as PayPal or Venmo.
Last year, the IRS said that people receiving 1099-Ks must report income over $600 on their 2023 tax returns. However, the IRS has delayed this due to ongoing confusion and misinformation about the 600 dollar rule.
If you receive a 1099-K in January 2024 but made less than $20,000 and had under 200 transactions through a third-party network, you do not have to report that income to the IRS for 2023 taxes.
On the other hand, all income remains taxable, including gig work, side jobs, and money made from selling items online. Neglecting to report 1099-K income could result in the IRS flagging your return and you having to pay penalties if you understated taxes.
6. Make Estimated Tax Payments and/or Adjust Tax Withholding
Taxpayers should consider making estimated or extra tax payments involving non-salary earnings from unemployment, self-employment, Social Security, pensions, or digital assets.
The IRS Tax Withholding Estimator can assist individuals in determining whether they should think about making an additional tax payment to prevent an unexpected tax liability when they submit their tax returns.
In some cases when you’ve gone through a life change, like getting married/divorced or having a baby, you may want to update your tax withholding – especially if you qualify for new credits.
To know whether to update your withholding, use the Tax Withholding Estimator and Interactive Tax Assistant.
7. Claim Energy-Related Credits
If you purchased an electric vehicle in 2023, you could benefit from the revisions introduced by the Inflation Reduction Act of 2022 and be eligible for energy-related tax credits.
To claim these clean vehicle tax credits, you must provide the electric vehicle’s VIN and submit Form 8936, the Qualified Plug-in Electric Drive Motor Vehicle Credit, along with your federal tax return.
For homeowners who made energy enhancements to their home, tax credits are available for a portion of qualifying expenses. The Inflation Reduction Act of 2022 expanded the credit amounts and the types of expenses.
You should include Form 5695 (Part II) when filing your tax return if you are eligible to take Residential Energy Credits.
8. Track Business Expenses and Charitable Contributions (Donations) Throughout the Year
If you plan to itemize deductions or subtract self-employed business expenses, you’ll want to keep detailed records for every transaction during the year.
Some taxpayers prefer to put expenses and charitable contributions on a single credit card, since major credit card companies issue a year-end summary to users that includes the amount, date, and description of each charge.
This way, they will have an accurate record of tax-deductible items such as medical bills, home office costs, and charitable contributions, which can be included with a tax return.
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