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Local

IRS: The time to prepare for tax season is now

It’s not too early: IRS offers tips for upcoming tax season

The Internal Revenue Service is urging taxpayers to act now to avoid a tax-time surprise and ensure smooth processing of their 2019 federal tax return.

The IRS urges everyone to use the Tax Withholding Estimator to perform a paycheck or pension income checkup.

This is even more important for those who received a smaller refund than expected or owed an unexpected tax bill last year. It’s also a good idea for anyone who had a key life event, such as getting married, getting divorced, having or adopting a child, retiring, buying a home or starting college.

If the Tax Withholding Estimator recommends a change, an employee can then submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer.

Don’t send this form to the IRS. Similarly, recipients of pension or annuity income can use the results from the estimator to complete a Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give it to their payer.

Taxpayers who receive a substantial amount of non-wage income should make quarterly estimated tax payments.

This can include self-employment income, investment income (including gain from the sale, exchange or other disposition of virtual currency), taxable Social Security benefits and in some instances, pension and annuity income. Making estimated tax payments can also help a wage-earner cover an unexpected withholding shortfall.

Estimated tax payments are due quarterly, with the last payment for 2019 due on Jan. 15, 2020.

Form 1040-ES ,Estimated Tax for Individuals, has a worksheet to help figure these payments. Payment options can be found at IRS.gov/payments.

Workers and retirees who receive self-employment income or income from the gig economy, including payments in the form of virtual currency, should make sure to take these amounts into account when they fill out the Tax Withholding Estimator.

Payments received in virtual currency by independent contractors and other service providers are taxable, and self-employment tax rules generally apply.

Normally, taxpayers must issue Form 1099-MISC. Similarly, wages paid using virtual currency are taxable to the employee, subject to withholding, and must be reported by the employer on a Form W-2.

People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes those who owe alternative minimum tax or various other taxes, and people with long-term capital gains or qualified dividends.

The IRS urges all taxpayers to develop a record keeping system electronic or paper that keeps important information in one place.

Keep copies of filed tax returns and all supporting documents for at least three years. This includes year-end Forms W-2 from employers,

Forms 1099 from banks and other payers, other income documents, records documenting all virtual currency transactions, and Forms 1095-A for those claiming the Premium Tax Credit. Add tax records to the files as they are received. Having complete and timely records can help any taxpayer file a complete and accurate return.

Taxpayers should confirm that each employer, bank or other payer has a current mailing address or email address.

Typically, year-end forms start arriving by mail – or are available online – in January.

Review them carefully and, if any of the information shown is inaccurate, contact the payer right away for a correction.

To avoid refund delays, be sure to gather all year-end income documents before filing a 2019 return.

Filing too early, before receiving a key document, often means a taxpayer must file an amended return to report additional income or claim a refund. It can take up to 16 weeks to get an amended return refund.

Additional tips for filing as tax season approaches can be found on the IRS website, www.IRS.gov.

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