The IRS urged taxpayers to act now to ensure the smooth processing of their 2019 federal tax return. This reminder, first in a series, was aimed to help taxpayers get ready for the upcoming tax filing season. Consequently, a special page, newly updated and available on IRS.gov, outlined things taxpayers can do to prepare for the 2020 tax season.
The IRS advised taxpayers to use the Tax Withholding Estimator to perform a paycheck or pension income checkup. This step is even more important for those who received a smaller refund than expected or owed an unexpected tax bill last year or taxpayers who had a key life event, such as getting married, getting divorced, having or adopting a child, retiring, buying a home or starting college. If the Tax Withholding Estimator recommends a change, an employee can then submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer. Similarly, recipients of pension or annuity income may use the results from the estimator to complete a Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give it to their payer. Moreover, taxpayers who received a substantial amount of non-wage income should make quarterly estimated tax payments. This included self-employment income, investment income, including gain from the sale, exchange or other disposition of virtual currency, taxable Social Security benefits and in some instances, pension and annuity income.
Estimated tax payments are due quarterly, with the last payment for 2019 due on January 15, 2020. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to help figure these payments. Payment options can be found at IRS.gov/payments. Taxpayers with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes those who owe alternative minimum tax or various other taxes, and people with long-term capital gains or qualified dividends.
Gather Documents and Organize Tax Records
Taxpayers were further urged to develop a recordkeeping system, electronic or paper, to keep important information in one place. Moreover, taxpayers were instructed to keep copies of filed tax returns and all supporting documents for at least three years. This included year-end Forms W-2 from employers, Forms 1099, Miscellaneous Income, from banks and other payers, other income documents, records documenting all virtual currency transactions, and Forms 1095-A, Health Insurance Marketplace Statement, for those claiming the Premium Tax Credit.
Renew Expiring Tax ID Numbers
Additionally, taxpayers with expiring Individual Taxpayer Identification Numbers (ITINs) should get their ITINs renewed quickly and avoid refund delays by