Summer Tax Series Part 1: Assess Your Current Situation
The summer offers both taxpayers and tax professionals an opportunity to revisit their tax situation. Over the next few weeks, I will highlight steps to take throughout the summer to best prepare for the second half of the year.
When it comes to your tax situation, it’s important to establish a baseline. The summer is the perfect time to evaluate potential current and prior year issues to ensure they are resolved.
Review IRS Account
The best place to start is your IRS online account. If you do not have an account already, it is recommended to create one. Your account serves a number of purposes:
Confirm tax returns have been filed and accepted
Review any outstanding balances
Download income transcripts
Confirm your current address
By reviewing the above, you will be able to confirm that you are currently in good standing with the IRS. I frequently hear from taxpayers who believed they had timely filed their return or paid their tax, only to realize the IRS shows no activity on their account. Or, the IRS has additional income on file that does not match the filed return. With interest rates at an all-time high (8%), it is important to confirm your standing to avoid unnecessary financial penalty.
You will also find the IRS often makes errors when processing returns and payments. It is important to ensure any errors are identified and rectified as soon as possible. The IRS will send any notices to the address on file. If you do not update your address, you will not receive notices and penalties will continue to accrue if tax is owed.
The responsibility to stay in compliance almost always falls on the taxpayer. The IRS is notorious for long processing times, mishandling documents, and applying payments to incorrect tax periods. It is best to identify and correct any issues as soon as they arise.
File Your Return
If you filed an extension or fell behind on your taxes, the summer is the perfect time to finalize your tax return. Even if you are waiting on additional documents from partnerships or other businesses, you can strive to organize most of your documents and complete a majority of your return with the available information. You can then easily file your return once the remainder of your documents are received.
If you are working with a tax professional, you will also find they often have more availability in the summer months. This will allow for more discussion, a quicker turnaround process, and prevent a rush as the extension filing deadline approaches.
If you haven’t done so already, this will also give you an idea of the total tax owed (or refund due), which will give you more insight into your net financial position for the year.
Apply for an Identity Protection PIN
There have been a number of instances (here and here) in the last year that put taxpayer’s personal data in jeopardy. To counteract these threats, I highly recommend applying for an Identity Protection PIN. This PIN acts as a type of 2-factor authentication. You (or a potential data thief) will not be able to file your tax return without this six-digit PIN. The IRS will issue a new PIN each year to ensure the safety of your return.