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Don’t take tax problems into the coming year

Tax Season Begins
Posted at 3:50 PM, Feb 04, 2021
and last updated 2021-02-04 18:50:27-05

Tax problems – like IRS notices, audits and penalties – can be stressful. They’re even more stressful if you ignore them. As this year comes to a close, take these three steps to ensure you don’t bring any old problems into the new year.

Tax Problems are Pretty Common

If you do have an issue, you’re not alone. Every year, millions of taxpayers face an IRS issue. The most common issues are:

  • Penalties: The IRS charges more than 40 million penalties every year.
  • Audits: There are about 1.4 million IRS audits each year – and some last well over a year.
  • CP2000 or underreporting notices: The IRS sends these notices to 4 million taxpayers every year. IRS systems automatically send them when income reported on tax returns doesn’t match the information the IRS gets from employers and other payers. The mismatch triggers a notice that asks for an explanation and proposes additional taxes.
  • IRS bills: Currently, more than 17 million taxpayers owe the IRS and can’t pay.
  • Tax identity theft: Millions of taxpayers have had their personal information stolen during the past couple of years. These taxpayers are at an increased risk that fraudsters will file a false return under their name next year.
  • Unfiled returns: The IRS has information showing that more than 7 million taxpayers don’t file their required returns every year.

It’s true that many IRS issues can take months to resolve. But that should not stop you from taking steps to put any tax issues behind you for next year.

Here’s what to do:

  1. Fully understand what happened, and why: When you investigate your issue with the IRS, you’ll need to get to the underlying cause. For example, what seems to be an underreporting issue could really be caused by identity theft. Understanding exactly what caused your tax problem will help you prevent it from happening again. Learn how to research your IRS account.
  2. Pick the best option or options to fix it: Determining all of your potential solutions to resolve your issue – and picking the best one — may take a little work. For example, if you have an IRS penalty, you’d have to take a look at the five ways to get penalties removed and decide which ones apply to your situation.
  3. Don’t wait: Get started now. Once you’re moving forward with a solution, make sure to send the IRS a complete request or response. This will allow the IRS to make a determination with all of your facts. It will also avoid miscommunication that can lead to a prolonged interaction with the IRS. Meeting IRS deadlines is essential to avoiding a premature IRS decision on your situation. If you’ve already missed the deadline, don’t let that deter you from trying to solve your problem.
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NEW TAX LAW

If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

Fastax Has You Covered

Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512