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Tax season opens on January 27th, which means there’s another opportunity to: (a) vent about how much you hate this time of year, (b) complain about the complexity of the U.S. code, and (c) whine about your refund being lower than previous years, even though you know that a refund is just the return of the extra money that you paid Uncle Sam, on which he paid zero interest.
The Internal Revenue Service is hoping that this year’s filing season will be less fraught than last year’s, because the government has remained open (remember the 35-day shutdown of 2018-2019?) and it will be the second time that the American taxpayers will be filing under the new rules that emerged from the Tax Cuts and Jobs Act (TCJA).
The deadline to file 2019 tax returns and pay any tax owed is Wednesday, April 15, 2020 and the IRS expects that more than 150 million individual tax returns will be filed.
WHERE TO START:
The best way to prepare for this season is to grab last year’s return as a guide to what’s missing and then to start organizing your documents (W-2s, 1099s, as well as bank, investment, mutual fund and mortgage company documents) in a simple file. While most of tax year 2019 will look like 2018, there are inflation adjustments to the standard deduction, tax bracket ranges and many tax credits. There are also a few notable changes:
Affordable Care Act Individual Mandate: The penalty for not having health insurance was reduced to zero beginning after Dec. 31, 2018. So if you didn’t have coverage last year, you don’t have to pay the penalty, nor must you file Form 8965, if you don’t have a minimum essential coverage for part or all of 2019.
Out of Pocket Medical Expenses: To deduct unreimbursed medical or health care expenses, you need to reach a threshold level of a certain percentage of your Adjusted Gross Income. The TCJA temporarily lowered the floor from 10 percent to 7.5 percent for tax years 2017 and 2018. However, a separate bill kept the 7.5 percent level in tact for tax year 2019. It will rise to 10 percent for tax year 2020.
Good News/Bad news on Alimony: If your separation or divorce decree was finalized after 2018, alimony payments are not deductible for the payer, nor are they treated as taxable income to the recipient. If you were divorced prior, the old rules apply.
HOW TO FILE:
The IRS is underscoring that taxpayers may be paying for tax preparation services, when there are FREE options available via the agency’s Free File program. Free File is a tax preparation and electronic filing program for eligible taxpayers, developed through a partnership between the IRS and a group of private sector tax software companies.
The agency has amplified the Free File message, after a ProPublica investigation found that Intuit (the maker of TurboTax) and H&R Block both intentionally excluded the free version of their filing services from search results. As a result, the IRS updated its agreement with the providers that participate in Free File, prohibiting them “from engaging in any practice that would cause the member's Free File landing page to be excluded from an organic Internet search.”
Any taxpayer earning $69,000 or less (that’s about 100 million Americans, according to the Free File alliance), can find one or more free commercial software products available by visiting IRS.gov/freefile. Some providers offer both free federal and state tax preparation. Additionally, Free File is mobile enabled, which means that you can use your smart phone or tablet to do your taxes.
The IRS also offers Free File Fillable Forms, which is available to anyone regardless of income. These forms are best suited for taxpayers experienced in preparing returns by hand and who need limited assistance. If you are queasy about your digital security, the IRS notes, “Filing electronically flags common errors and prompts taxpayers for missing information.”
BE WARY OF THE SCAMMERS:
They’ll be out on the prowl again this tax season, so be on the look out for the following:
Email/Text/Social Media Phishing Scams: These “official” notices appear to come from the IRS or state tax agencies, but the IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. If you receive anything suspicious, DO NOT CLICK ON IT, instead forward it to phishing@irs.gov.
Old School Letters/Phone Calls: Letters claiming to be from the IRS often demand payment of an overdue tax bill. If this seems sketchy, register at IRS.gov and check your account balance. And no, that's not the IRS calling with angry demands of payment and threats of jail or a lawsuit. The IRS does not make threatening phone calls, nor does the IRS request payment via gift cards or debit cards. Report fraudulent letters and telephone calls to the Treasury Inspector General for Tax Administration at TIGTA.gov.
TAX PREPARATION RESOURCES:
The Volunteer Income Tax Assistance (VITA) program: Free tax help to people who generally make $56,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns.
Tax Counseling for the Elderly (TCE) program: Free tax help for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.