Taxpayer Follow-up Maintenance
I proudly wore my CPA and Enrolled Agent hat while I labored through a busy tax season. With April 18th come and gone, there is now time to reflect on how going forward I can improve the processes and communications mediums of my firm. There's also a lot to reflect upon regarding how to help my clients maximize their taxable position for the 2022 tax year filing. Some clients ponder whether it is necessary to worry about this now since it will be a while before we go through this tax preparation exercise again. That response is a good segue for me to point out that the most effective tax planning is done as early as possible since it allows for one to be proactive in choosing what, when, and how to engage in certain taxable events thereby allowing for the ability to choose from a greater amount of potential taxable outcomes versus waiting until tax prep time rolls around which in turn significantly limits one's options to choose a taxable alternative.
Since every taxpayer has a unique situation requiring specific actions when considering how to maximize their own taxable situation, it would not be prudent to try to list them here. However, there is a simple universal repetitive task that taxpayers could utilize to help them become more proactive with their tax health (I was tempted to use the word “prophylactic” since having a poor tax situation can lead to bad health). The task is simply to just log into your online IRS tax account at least every other month to confirm that all data listed within is correct and to make you aware of any IRS notices of action. If one does not have an account with the IRS, it is easy to set one up. Just go to “IRS Gov Create Account” and follow the instructions.
What are the advantages of this? For starters, this is a great and timely way to make sure the most recent tax return compares to what IRS has listed. This will avoid many problems, especially the next item. One will be immediately aware of any IRS notices or actions allowing for a timely response, and if in the wrong an opportunity to lessen the accrual of penalties and interest. Also, since certain allowable responses are time-oriented, it is crucial to be able to respond within the allowable time otherwise one may not get to use them. As a tax attorney, I have dealt with several clients who came for help in response to their IRS notices and were not aware of other IRS notices sent. This resulted in more complexity and additional cost to the clients all of which could have been avoided simply had they been proactively checking their IRS accounts.
There are many additional reasons to perform routine checks on your IRS account. Here are some relative points taken from a recently posted article on the IRS website, “ Steps to Take Now to Get a Jump on Your Taxes"
Use online account to securely access the latest information available about your federal tax account and see information from your most recently filed tax return on IRS.gov.
- View the amounts of the Economic Impact Payments you received
- Access Child Tax Credit Update portal for information about advance Child Tax Credit payments
- View key data from your most recent tax return and access additional records and transcripts
- View details of your payment plan if you have one
- View 5 years of payment history and any pending or scheduled payments
Organized tax records make preparing a complete and accurate tax return easier. It helps you avoid errors that lead to processing delays that slow your refund and may also help you find overlooked deductions or credits.
Also another good tax prepartion tax tip: Wait to file until you have your tax records including:
- Forms W-2 from your employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan
- Form 1099-K, 1099-MISC, W-2 or other income statement if you worked in the gig economy
- Form 1099-INT if you were paid interest
- Other income documents and records of virtual currency transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
- Letter 6419, 2021 Total Advance Child Tax Credit Payments to reconcile your advance Child Tax Credit payments
- Letter 6475, Your 2021 Economic Impact Payment, to determine whether you're eligible to claim the Recovery Rebate Credit
This one is important! Notify the IRS if your address changes and notify the Social Security Administration of a legal name change. This will make sure that you are getting timely information from IRS.
I hope this helps someone to maintain good tax health. If there are any observations or questions, please feel free to reach out to me.