By Terry Rogers
Now that the holidays are past, people begin turning their thoughts to the upcoming tax season. Tax documents from mortgage companies, student loan organizations and employers begin to arrive through both postal and electronic mailboxes. There are several things you can do to get yourself ready for the upcoming tax season so you are not scrambling at the last minute when taxes are due in mid-April, according to Julie Wagner of Marshall, Wagner & Associates.
“While you may not receive your W-2’s and 1099’s until the end of January, now is the time to start collecting and summarizing your deductible receipts,” Ms. Wagner said. “Mortgage interest paid, real estate taxes paid, last year’s tax preparation fees as well as other itemized deductions can be collected now.” Ms. Wagner said that although the higher threshold of 10 percent of income eliminates the ability for many people to deduct medical expenses, there are years when an individual could have higher than normal medical costs, especially if they are paying premiums out-of-pocket. The only way to know if they are deductible is to add them up.
Charitable contributions should also be summarized. If you donate non-cash items, such as unwanted clothing or household items to Goodwill or other charities, the receipt may not have a cash amount included. Ms. Wagner suggested valuing the item at https://satruck.org/home/donationvalueguide.
“You will need to bring all W-2’s, 1099’s and other tax filing forms in order to have your taxes completed properly,” Ms. Wagner said. “Be sure to provide your tax preparer with any Form 1095 you receive. This is the form that tells the preparer about your health insurance coverage. The penalty for not having health insurance is calucalted with your income tax return.” Ms. Wagner said that if you sell items online, such as through eBay or Etsy, you may receive a 1099K from a credit card company or PayPal. It is important that you bring that to your tax preparer as well.
If you are concerned about your tax burden this year, Ms. Wagner said there are still things you can do to lower your taxes. If you are eligible, contributing to an Individual Retirement Account (IRA) is one way to lower your income taxes. Business owners may want to consider a SEP IRA. According to the IRS, you can contribute to an IRA until April 18, 2017 and deduct the amount from your 2016 taxes. Ms. Wagner said it is best to discuss an IRA with your tax advisor who can inform you the limits permitted and the best way to make the contribution.
“We highly recommend that when you are getting your 2016 tax return prepared, you consider setting up an appointment for an after tax season ‘Tax Tune Up’ to examine tax planning strategies,” Ms. Wagner said.
One of the most common mistakes Ms. Wagner says she sees on self-prepared returns is confusing a 1099 with a W-2. If you receive a 1099, you are normally considered self-employed and must file a Schedule C with your tax return. You do not include 1099 amounts on the first line with your W-2 income.
Since the IRS does not release audit selection criteria, it is difficult to determine what may trigger an audit. Ms. Wagner said that large deductions that are unusual may increase the risk of audit. If you have unusual, large deductions, be sure that you have the documentation to support the deduction in case you are audited. Ms. Wagner said that if you receive correspondence from the IRS, contact your tax preparer before attempting to solve it on your own. Many notices are mail audits where what you submitted on your tax return does not match what was submitted to the IRS in your name. They can often be resolved easily. If you are notified that there will be an in-person audit, you should contact a professional who can handle the audit on your behalf rather than trying to handle it on your own.
The deadline to file your federal taxes is April 18, 2017. Normally, the deadline is April 15, but that date falls on a Saturday in 2017. In addition, Emancipation Day, a holiday in Washington DC is observed on Monday, April 17, 2017, extending the deadline an extra three days for filing 2016 taxes. The deadline to file Delaware state taxes is Monday, May 1, 2017. This deadline is also extended from April 30 since that date falls on a Sunday. If you need more information on filing your taxes or you have received a notice from the IRS, contact Julie Wagner of Marshall, Wagner & Associates at 302-227-2537.
Sign up for you free digital subscription of The Weekly Review, delivered directly to your email every Tuesday morning. A quick cover-to-cover read to catch up on the news of the week and experience great stories about our local communities. Sign up for your free email subscription below.