Filing your taxes can be an overwhelming experience – and that’s okay!
When your money is on the line, you want to make sure that your taxes are filed correctly the first time. No one wants to receive a notice from the IRS demanding extra payment or additional documents.
Unfortunately, there is no one-size-fits-all approach to filing your taxes. Every year, there are a plethora of new laws and deduction guidelines to take into consideration and 2020 is no different.
With taxpayers still navigating the changes under the Tax Cuts and Jobs Act, filing your taxes can seem even more daunting than usual.
Do-It-Yourself vs. Working with a Professional
Now that tax season is officially here, a question on many taxpayers’ minds is “how should I file my taxes?”
There are three main ways to file your taxes:
- File them yourself using the downloadable forms from IRS.gov
- File using a tax software program or website that will walk you through the process
- Hire an accountant or tax preparer company to handle the details for you.
At first glance, filing your taxes on your own may see like the most economical option. After all, you don’t have to charge yourself hourly rates, but filing yourself can come with its own slew of problems that could end up being just as costly.
If you are determined to go the DIY route for your taxes, we recommend that you work with a tax software program or free tax preparer website – but be warned; many of these programs have hidden fees and don’t end up being as “free” as they claim.
However, if your taxes are relatively simple, meaning you only have a single W2 to file and no real deductions to take advantage of, it may be a great option for you.
Currently, about 42% of taxpayers choose to file themselves or with the assistance of tax preparing programs which means the majority still turn to the professionals to file their returns each year.
When you hire a tax professional, you pay for their expertise in preparing a wide variety of tax returns as well as their knowledge of the current state of tax law.
A tax professional can guarantee that you file every eligible deduction possible so you can get your largest tax refund possible.
While hiring a tax professional may seem like a large investment up front, it could mean a much larger tax refund for you in a couple months.
How to Choose the Right Pro for You
Many taxpayers turn to Google or Yelp to find reviews on their local tax preparers to help them choose a professional to work with, but few know what to look for in a qualified tax preparer.
There are a number of designations within the professional tax industry, but not all of them are created equal.
When you search for a professional to file your taxes, look for the following designations:
- Certified Public Accountants (CPA)
- Tax Attorneys
- Individuals with a Preparer Tax Identification Number (PTIN)
Remember: it is required by the IRS for any tax preparer who provides services in exchange for compensation to at least have a PTIN.
While it is not difficult to find someone with a PTIN to assist in filing your taxes, if you are already investing the money to have a professional work on your taxes, it would be worth your while to at minimum work with a CPA or tax attorney who, in the event of a tax audit, will be able to represent you against the IRS.
A tax attorney is by no means necessary to file your yearly taxes, but their expertise is highly valuable. If you are a high-risk taxpayer, meaning your tax returns are often complicated to file or if you deal or have dealt with tax delinquency, working with a tax company who staffs a large variety of tax professionals such as CPAs, Enrolled Agents, and Tax Attorneys may be the most beneficial to you.
When you work with a large company, you get the benefit of a wide variety of expertise all under one roof which can help ensure that you are protected from the IRS and receiving the most possible deductions on your return.
Of course, there is no “right answer” when it comes to choosing a tax preparer. Whatever you are looking for, the bottom line is to make sure your preparer is worth your time and effort. After all, they are doing the heavy lifting for you.
Understanding the Basics
Once you decide how you will be filing your taxes this tax season, it is important to have a grasp on what it actually means to file your taxes in 2020.
Regardless of whether you decide to work with a professional or file your taxes yourself, begin to gather paycheck stubs, receipts, IRS forms, and any other documentation that will help you get the most out of your refund as soon as possible.
With the changes under the Tax Cuts and Jobs Act, it’s essential that you are aware of the updates the law brought to your ability to claim deductions.
If you choose to work with a tax professional, they should be aware of all of the updates and changes to the tax code that effect your filing, but you can never be too prepared.
Here are some of the most notable changes that will affect filing your 2019 taxes.
Moving Expense Reimbursements: Under the new tax rules, employers are required to include all moving expenses into the employee’s wages which are subject to income and employment taxes.
Employee Business Expenses: Employees are no longer permitted to deduct unreimbursed expenses that they incur for work.
Job Search Expenses: Expenses that are incurred in relation to finding a new job are no longer deductible.
Casualty Losses: Theft losses and personal casualty are no longer deductible expect for those relating to a presidentially declared disaster area.
Tax Preparation Fees: Unless you are self-employed, workers can no longer write off any costs from getting help with your taxes from 2018 to 2025.
Medical Expenses: Qualified medical and dental expenses will remain deductible through 2020 tax returns.
College Tuition and Fees: While income limits do apply, you may be able to deduct up to $4,000 for qualified college tuition and fees that would reduce your income that is subject to taxes.
Be aware, this is by no means a comprehensive list of all the changes that will affect deductions this year. To ensure that you receive all possible deductions on your taxes this year, it is best to work with a qualified tax preparation professional.
Consequences of Not Filing Your Taxes
While some people look forward to tax season because of their expectation of getting a large refund, many taxpayers dread this time of year because it’s either a guaranteed tax bill they can’t afford or a threat of a costly audit that could send their financials into disarray.
Whether you don’t file your taxes out of fear or just because the process is too complicated to deal with, there are major consequences to not filing your taxes.
Losing your refund – If you don’t file your taxes and there is a possibility of a refund, you only have three years to file with the federal government to claim your money. After the three-year grace period, the government will consider your refund forfeited.
Substitute for Return – If you fail to file your tax return, the IRS may file a substitute return on your behalf. This return will be filed without giving any credit for deductions or exemptions you may be entitled to receive.
Back Taxes – If you fail to a tax return you may not just end up forfeiting a refund, you could end up owing the IRS additional money. If the IRS deems that you owe a tax bill, this amount will continue to increase each month thanks to daily compounded interest and penalties.
Aggressive Collections Activities – If you have an outstanding balance with the IRS, the government will begin to implement aggressive collections actives in an attempt to collect on the debt. This can range from mailed notices, to wage garnishments, bank levies, and tax liens.