By Eva Rosenberg
Transmitters have been storing up tax return data for weeks, just chomping at the bit, waiting for the starting pistol to go off. Finally, this week, the IRS opened the e-filing gates.
Still, things are running behind schedule this year. Common refund-generating forms, like the Education Credit, for instance, (see “Instructions for Form 8863”) are not being processed until the end of February. (See the IRS’s list of late forms.) This is holding up refunds for taxpayers, as well as fees for tax professionals — who often don’t get paid until the tax return is filed. One tax pro even asked me whether it would be unethical to complete and file tax returns without the Form 8863 — and amend them later.
Here’s what we can and should be doing in February.
1. Track down stray forms.
W-2s and 1099s are rolling in. They should all have been postmarked by Jan. 31. If you don’t receive them by mid-February, track them down — especially if you’ve moved since filling out W-4s and W-9s. Contact your former employers — and clients. But remember, if you’re self-employed, don’t do your bookkeeping by collecting 1099s. It’s up to you to keep your own records.
2. Get an IP PIN.
Identity theft is on the rise. At a recent San Fernando Valley Breakfast Meeting for tax professionals, practically every single tax pro said they had clients who’d been ID-theft victims. If your identity has been compromised, make sure you get your special IP PIN. Fill out Form 14039, the Identity Theft Affidavit (find Form 14039 here). If you did that last year and still haven’t received a PIN, contact the IRS immediately (see the IRS Identity Protection page). If you find yourself getting nowhere after 30 days, contact the Taxpayer Advocate Service at 1-877-777-4778 (or find them online).
This special IP PIN is issued to people who have informed the IRS that someone may have filed a fraudulent tax return using their Social Security number. Getting an IP PIN will ensure that only you are able to file a tax return using your own Social Security number. Even if you were a victim of credit card-related identity theft rather than tax-related theft, alert the IRS.
3. File a new W-4.
Provide your employer with a new W-4 Form for 2013 if you told them you were exempt from withholding last year. If you end up with a refund for 2012, or owe less than $1,000 (see Tax Withholding rules here), you may file exempt again this year.
4. Businesses: Submit paper 1099s.
Businesses that file 1099s on paper must submit them by Feb. 28. Those who file electronically can wait until March 31. Remember, W-2s and 1099s should have been sent to recipients by Jan. 31. One of the reasons to hold off filing the forms for a month or so is to wait for corrected information. Some workers may have moved. Others may find discrepancies between their numbers and yours. Making corrections before filing the 1099s and W-2s means that you don’t have to file amendments with Uncle Sam.
5. Check for duplicated income.
Steven Aldrich, CEO of Outright.com, a Go Daddy company, recommends reviewing1099-MISC and 1099-K forms carefully. It’s quite possible that you could get a 1099-MISC from your vendors, and a 1099-K from your merchant account processor for the same work.
There may be overlapping amounts, making it appear that you earned more than you really did. Keeping good books — using a system like Outright.com, FreshBooks or QuickBooks — will ensure you know how much you really earned. (Note: TaxMama is holding a workshop in late February on how to adjust your tax returns to avoid paying tax on duplicated income. To get an invitation, sign up for a free TaxMama.com membership here.
6. Schedule your tax appointment.
Aldrich also recommends that you say hello to your accountant. Remind your tax pro that you want an appointment with him or her. If you don’t already have one, choose a tax preparer or accountant now so that they have time to talk with you about tax-planning as well as tax-preparation matters.
You can work with an Enrolled Agent (link), a CPA (link) or an RTRP (link). (Note: The IRS has suspended the Registered Tax Return Preparer (RTRP) program, due to a court order. However, over 53,000 tax preparers have already earned the RTRP license.)
7. Set up a filing system for 2012 documents.
In January, we talked about setting up your 2013 filing system. With all the 2012 documents coming in now, this is also a good time to set up your 2012 filing system. Aldrich thinks it’s wise to keep everything in one place. Organize the information into folders if it’s on paper, or enter the data into spreadsheets. Remember to separate personal spending from business spending to make tax preparation easy, regardless of how you prepare your returns (paper and pencil, tax software, accountant).
These expense categories were used by many e-commerce businesses last year: cost of goods sold, marketplace fees, shipping costs, office supplies, and utilities. Service businesses generally reported expenses in these categories: taxes/licenses, office supplies, meals, and travel.
When it comes to organizing and storing your documents in the cloud, you have a free resource at TaxACT’s DocVault (link). Or you can dump your boxes and bags of records on ShoeBoxed.com (link) and let them organize it for you. Incidentally, every resource mentioned in this article has mobile apps to let you upload or transmit data on the go.
8. Set up your EFTPS account.
Taxpayers who expect to be making estimated tax payments should set up an Electronic Federal Tax Payment System (EFTPS) account this month. This will enable you to pay all federal taxes, without a fee, directly from your bank account. This is perfect if you’re a procrastinator and often make payments at the last minute.
Check to see if your state has a similar system. (Find your state’s tax site here.)
Incidentally, one of the fun things to do this month is to watch the tax commercial wars. TurboTax got so aggressive in its commercials this year that H&R Block filed a motion in the U.S. District Court to get an injunction against several of the ads. They didn’t get the injunction. Instead, H&R Block is running some ads of its own, highlighting the skills of its tax professionals. Keep watching, all the tax ads are getting better.
Eva Rosenberg is the publisher of TaxMama.com (www.taxmama.com), where your tax questions are answered for free. She is the author of several books and ebooks, including the newest edition of “Small Business Taxes Made Easy.” And she teaches tax courses at IRSExams.com and CPE Link.