With the beginning of a new year, most individuals are preparing for another season: income taxes.
The Democrat spoke to staff accountant Sarah Hudson of Wilson Toellner for tips to help make filing as stress-free as possible.
Most individuals should expect to receive their Form W-2 from employers by Jan. 31, according to Hudson. If employers do not mail or hand-deliver them by the end of the month, Hudson suggests checking online employee portals or contacting the company’s human resource department. Freelancers who were compensated at least $600 should receive a Form 1099-MISC by Jan. 31. Investment statements will be sent or made available online between January and March.
Contact a financial advisor if there are any questions about the status of tax documents. Most banks and other financial institutions will have information for interest earned or interest paid available by the end of January, Hudson explained.
Now is when individuals should make appointments with their tax preparer, especially if a person is working with a new tax preparer. Now is also the time to gather all the necessary documents.
“Begin watching for tax forms and documents coming by mail and start a file or folder for anything you receive for tax year 2019,” Hudson suggests. “Staying organized and keeping all information in one place will help ensure you have everything needed to prepare your return. If you aren’t sure if you have received all forms and documents, ask your tax preparer for a checklist of necessary documents.”
While many individuals prepare their own taxes, Hudson recommends consulting with financial professionals for deduction opportunities.
“Maximizing contributions to retirement plans could help you lower your taxable income,” Hudson pointed out. “Some individuals have the ability to make contributions to certain retirement and health plans until April 15. Contribution limits and maximums can be complex and different from one individual to the next, so it is best to talk with your accountant to find what is best given your overall tax situation.”
Now is also the time to notify financial institutions and employers of any information changes such n address or marital status. Hudson said for privacy protection, many financial institutions will not allow tax forms and information to be forwarded by mail.
“If you have had an address change, having a forwarding address on file with the postal service will not suffice; contact your financial institutions as soon as possible to ensure timely delivery of tax forms,” Hudson explained. “Take into consideration any major life events that have happened in the last year such as a change in marital status, deaths, births, home sales/purchases, continuing education, and employment changes. Such life events can affect your tax return, so be sure to communicate these changes to your accountant and other financial professionals, if you haven’t already.”
Hudson listed the following recent changes to tax laws which may have an impact on how an individual files.
The SECURE Act of 2019 made several updates to rules surrounding retirement plans, one of the most notable being the age increase for the onset of Required Minimum Distributions (RMDs) from age 70 ½ to age 72. The age restrictions for contributing to a traditional IRA have been lifted so long as there is earned income. Additionally, most payouts to non-spousal beneficiaries of an IRA have been mandated to a 10-year payout period. The SECURE Act also includes an allowance for a penalty-free retirement plan distribution up to $5,000 for a qualified birth or adoption, an increase in the tax credit available to small businesses when establishing a retirement plan, and much more.
Minimum wage and salary requirements will be an important discussion for many businesses in 2020. The minimum wage for Missouri increased to $9.45 an hour up from $8.60 in 2019, and the new minimum salary for exempt employees increased to $35,568 annually compared to $23,660 in 2019.
Standard mileage rates for business use of a vehicle has changed to 57.5 cents per mile for 2020, down from 58 cents in 2019.
The minimum essential health insurance coverage requirement with its corresponding individual shared responsibility payment was eliminated in 2019.
“Unfortunately, fraud, tax scams and identity theft continue to be an important issue that taxpayers need to be educated about,” Hudson cautioned. “Keep confidential information secure and avoid using generic or repeat passwords for online accounts.”
Above all, it is important to be aware the IRS does not initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, social security numbers, passwords or similar access information for credit cards, banks or other financial accounts. The only method the IRS will use to contact an individual is by mail. If a person does receive IRS notices or other correspondence by mail, bring them to the tax professional to review and respond appropriately.