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January steps to prepare for tax season
If you use part of your homeWith 2019 in the rearview mirror, the time is now to get a head start and prepare for the upcoming tax season. To help you manage your 2019 income tax filings, we’ve put together a short list of items you can get started on to make tax time a breeze.
Gather your Statements
If you own a business, you’ll need to figure out your profit for the year. You’ll need to obtain, as well as retain, copies of all of your bank statements, credit card statements and other financial account information related to the business for the entire tax year. If you are missing any statements, now is a good time to request them from their respective institutions. If you do not have online statements, it’s a good habit to scan them or take photos and store them as backup. The IRS requires you to keep your tax records and supporting documentation for at least 3 years after the tax return filing deadline or the date you filed–whichever comes later.
Organize Receipts and Deduction Information
While official tax forms such as Form 1099 and W-2 do not need to be issued until January 31, you can gather additional information–such as other income received or any deductible expenses that are not included in your statements–so you have them ready come filing season. Using a receipt scanner is an easy way to keep your finances organized, and a good habit to keep up year round.
You may also be eligible to claim a deduction on your tax return for charitable contributions made during the year. You should obtain a record from the charity (such as a receipt or a letter) showing the name of the organization, the date of the contribution, and the amount of the contribution of $250 or more.
Other receipts (proof of payment) that you should keep that may reduce your income taxes include statements for medical, child care or state taxes (income or property).
As a business owner, you may be able to deduct certain business expenses that you paid for personally, or that you incurred because you work predominantly from home–provided you meet the IRS’ requirements.
If you use your personal vehicle for both business and personal purposes, you may deduct only the business use portion. Miles driven from home to the office and from the office to home do not count as business miles. A log should be kept if you used a personal vehicle for business: record the business miles driven each day, the purpose and destination. You’ll also need to keep track of the total miles driven during the year. Deductible auto expenses include gas, oil, repairs, maintenance, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the business portion of the miles driven. If eligible, you may deduct a standard mileage rate of $0.58 per business mile in lieu of actual expenses.
If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation or rent for that area. You’ll need to figure out the percentage of your home devoted to your business activities, as well as the utilities, repairs, and depreciation associated with your business. Calculate these based on the square footage used for business over the total square footage of your home.
Employees should contact their employer to see if the business expenses which were paid for personally can be reimbursed. An employee can no longer claim unreimbursed business expenses on their personal income tax return.
2019 Q4 Estimated Tax Payment
For individuals, the final and fourth quarter estimated tax payment towards your 2019 tax liability is due on January 15, 2020, if applicable. If you were required to make 2019 estimated payments, it would be prudent to pay the tax due for 2019 as soon as possible, otherwise penalties and interest may accrue until you have paid the required minimum estimated tax due.
Note that these quarterly tax estimates are usually based on the prior year tax due. If you fail to pay the required minimum estimated taxes, you may need to pay an “underestimated tax” penalty for each quarter overdue. For the 1st quarter of 2020, the IRS has assessed a 5% penalty charge. However, even if you are late on the quarterly installments, make sure you pay any tax due when you file the return on or before its statutory deadline.
For individuals, the final tax liability that you owe with your return must be paid on, or before, April 15, 2020, otherwise you may face penalties up to 5% per month if you file your return late. If you have fallen behind on your tax installment obligations, you can make catch-up IRS tax payments at any time through the IRS’s secure online payment portal.
In case you are unable to pay the tax due on your return, you should consider entering into an installment agreement payment plan with the IRS. You should file your income tax return on time, regardless of whether you can pay the tax due, to avoid paying additional late filing penalties. If you are unable to pay, you will still be assessed a “failure to pay” penalty of 0.5% per month, plus interest.
Business filings due in January
Form 1099-MISC - Non-employee Compensation (Contractors)
If you paid any contractor $600 or more during 2019 for services they provided to your business, your business may need to prepare, file], and send a copy of Form 1099-MISC to your contractors by January 31, 2020.
In order to prepare Form 1099-MISC, you will need to know the contractor’s taxpayer identification number (such as social security number or employer identification number), federal tax entity classification and their mailing address. If you do not have this information already, you must request this from the subcontractor by providing them with Form W-9 as soon as possible.
If your business has made other miscellaneous payments for services, such as attorneys fees, over the $600 threshold during 2019, then you may also be required to report such payments on Form 1099-MISC. You can find a list of payments subject to Form 1099-MISC reporting on the IRS site.
If you subscribe to monthly Wave Payroll services, you can use Wave to generate and electronically file Form 1099-MISC for your subcontractors. Step 4 of our Payroll year-end checklist outlines how to do this.
Note that if you paid your contractor by credit card or third party payment platform, such as Paypal, your business may not need to file Form 1099-MISC. Please check with your payment service.
Looking for more help?
Set up an in-person or online consultation with an H&R Block tax pro. With upfront pricing and your choice of how to file, you'll finally feel good about tax season.
Have you fallen behind on keeping your business’ accounting records up-to-date or worried about your income tax filings? Wave Advisors can offer your business in-app to help relieve that stress and get you back to business faster.