December 22, 2022

end of year tax planning

As the year comes to an end, it’s time to prepare for the tax filing season. Getting prepared can help ease the process and result in a more accurate return and faster refund. Here are some tips for end of year tax planning.  

Review Your IRS Account 

Every taxpayer should have an online account with the IRS. In your account you can view any tax balances, payment history or payment plans. You can access tax records, manage communication preferences from the IRS, and view your Power of Attorney authorizations. You can also make payments or request a payment plan with the IRS. If you do not have an IRS account, you can create one on their website. Alternatively, if you want to access your tax information without using your online account, you can request an Account Transcript by mail. However, you’ll need to request one transcript per tax year, and they may not have the most up-to-date information regarding your penalties, interest, or pending actions. Businesses or individuals who filed a form that is not a 1040 can request transcripts through Form 4506-T. 

Organize Your Records 

Getting organized can help facilitate a smooth filing season. It’s important to make sure you have all relevant tax forms before filing to avoid errors that can lead to rejections or even IRS audits. You should have a W-2 form from each of your employers. You may also receive 1099 forms if you earn income from other sources. For example, Form 1099-INT will be sent to all taxpayers who were paid interest. Form 1099-G will be sent to anyone who received unemployment. Form 1099-DIV will be sent to all taxpayers who received at least $10 in dividends and distributions. A new form to be on the lookout for if you are a gig worker or small business owner this coming year is Form 1099-K, which will include income earned through third-party payment networks, like Venmo or PayPal. You’ll also want to collect any IRS notices you receive throughout the year.  

Check Your Individual Tax ID Number (ITIN) 

An ITIN is a tax processing number that the IRS issues to individuals who are required to have a U.S. taxpayer ID number but who not qualify for a Social Security number. Typically, an ITIN is valid unless you did not use it at least once during the previous three-year period, at which point it would expire. In other words, if your ITIN wasn’t used on a federal tax return at least once for tax years 2019, 2020, and 2021, it will expire on December 31, 2022. While the IRS will still accept a tax return with an expiring or expired ITIN, it could result in delays.  

Update Your Withholding 

Having the wrong amount withheld from your paychecks can result in a tax bill or a larger refund. If you had a tax bill last year, it could be that you did not withhold enough from your paychecks. While a larger refund sounds positive, it could mean that you withheld too much during the year, meaning you could’ve had more money each paycheck. If you had a major life change, like a marriage, divorce, the birth of a child, or a second job, it may be a good time to adjust your withholding. The IRS website has a free Tax Withholding Estimator tool that can help you calculate the correct amount of tax to withhold from each paycheck. Adjusting your withholding is as simple as submitting a new Form W-4 with your employer. In some cases, you may not have any taxes withheld. This is common for self-employed individuals or those who have investment income, pensions, Social Security benefits and other sources of income. If this applies to you, it’s important to make estimated tax payments to avoid a tax bill and penalties. The last quarterly tax payment for the year is due on January 17,2023 and can be made in your online IRS account. 

Tax Relief for Taxpayers 

Following these steps can help you prepare for the filing season in 2023. It is important to note that the 2023 tax season will be a bit different from previous years. Keep in mind that there will be no stimulus payments to collect and that some tax credit amounts have returned to pre-COVID levels. There will also be a much larger number of taxpayers who will receive Form 1099-K. Taxpayers should be warned that if their return does not include what is reported on Form 1099-K, it can trigger an automatic IRS notice or even an audit. Filing an accurate return can prevent financial stress in the long run. If you need Tax help, give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals.