It’s that time of year again, the least favorite one for most people… tax time. Here’s a good article to help you prepare for filing.
6 things to do in January to prepare for tax time
The good news, bad news and worse news about your 2016 taxes
MarketWatch By Eva Rosenberg
You will be facing a lot more documentation challenges this tax season, so it’s time to get started on your January to-do list.
Make a list of all the places from which you are expecting to receive documents.
Employers (W-2), customers (1099-MISC), merchant banking and PayPal (1099-K), investments (1099-INT and 1099-DIV), pension and IRA accounts (1099-R), sales or dispositions of real estate (1099S, 1099-A, 1099-COD, etc.), mortgage lenders (1098), state payments and refunds (1099-G), and so forth. Using last year’s tax file will give you a starting point. Make note of sources that you have closed out during the year. Though they may still issue reports for the few months’ worth of activities. Add the new income and expense sources to your list.
Note: If you had taxable gambling winnings, you would have received the W-2G form from the establishment on the spot. It will not be coming in the mail.
Did you move?
If you moved at any time last year, your employers, banks, etc. might have the wrong address for you. Send them updates this week — call them and fax or email the information so they get your correct address as soon as possible. One of the most common complaints TaxMama.com gets is that people didn’t receive their W-2s and 1099s — because they moved and forgot to notify the relevant issuers.
As a business, do you need to issue a Form 1099-MISC to anyone?
If you don’t already have each vendor’s name, address and tax ID number (especially via a Form W-9), get on the ball and start collecting that information immediately. Beware: vendors and freelancers who were not planning to pay taxes on their earnings may get hostile when you ask for their tax ID numbers.
You need to send the 1099s to recipients by Jan. 31 — even though you may not have to file the forms with the IRS until March 31. The penalty starts at $100 for each late 1099-MISC you issue. You know how antsy your vendors, affiliates, and freelancers get when the forms arrive late.
In fact, establish a policy for 2017. Before issuing a check to any freelancer or service provider, have them provide you with a signed Form W-9. It will save you a lot of trouble — and fights — next January.
Get proof of your health insurance coverage.
And that of your family members. Along with this, you will need to know the income of all members of the household in order to compute the health care credit or penalty. You’ll find new lines on your Form 1040. Line 61 deals with the tax/penalty for not having health care coverage. Line 69 is for the additional tax credit from Form 8962. Wow! You must see this form. In addition to household income, it asks about your monthly health insurance payment, your monthly premium tax credits…and so much more. (You will want to read the instructions.) This is the most complicated form that the IRS has ever issued for individuals to fill out. And it’s still in draft form.
Note: Administration of this new program will over task the IRS, which is understaffed and will thus be hard-pressed to verify the information you provide this year. Since there may be refunds involved, this is ripe for fraud. Expect the IRS to be slow in issuing these refunds, while they try to insure the filings are valid.
What’s your name?
Did you get married or divorced last year and change your name? Or did you simply change your name, officially, because you didn’t like your old name? Update your name on your Social Security record. Until you change the name on your Social Security card, use your previous name on your tax return. Don’t worry about the name on the W-2 or 1099 not matching the tax return.
Do you own rental real estate or a business that depreciates its assets?
There is a raft of new rules about depreciating vs. capitalizing property that takes effect for the 2014 tax returns. They are called uniform capitalization rules. What does that mean to you?
The good news:
If you have not claimed depreciation on assets, but should have, you will be able to catch up on all the lost depreciation at once. That could mean a generous tax deduction on your business or rental. For rentals with suspended losses, don’t worry, you won’t lose this additional deduction. This will simply increase the losses you will be able to use when you finally sell the building.
The bad news:
Practically everyone who is now, or should have been, depreciating anything will have to attach a Form 3115 to make an election (a declaration) that they will be opting into the IRS’s new capitalization rules. It’s complicated. Tax professionals, researchers and writers have been discussing this for over two years and we still have many open questions. Don’t tackle this alone. Having a tax professional work with you on this improves your chances of getting it right. If you still get it wrong, you can avoid the penalties because you tried to get professional guidance.
You see, you just might get audited over this change. Or not. In March 2014, before the IRS was hit with the Congressional budget cuts, they updated their audit guide on Capitalizing vs. Expensing Repairs.
The Form 3115 will have to be filed with the relevant 2014 tax return and sent in to a special IRS unit as well. It will require the taxpayer’s signature.
Is there any good news in the tax world for the month of January? Well, we’re expecting to see a lot of funny and exasperating antics from taxpayers, celebrities, and tax professionals as we try to muddle through the new rules. So, stay tuned for humorous stories.