If you’re dragging your feet in doing your 2020 taxes, welcome to a very large club. A club with some very distinguished members you’d think would know better. But even they stub their toes sometimes.
Thanks to Congress, special interest groups and others, tax rules are complicated. Sometimes almost conflicting. Doing your taxes correctly enough to stay out of trouble (not to mention a federal pen) is sometimes easier said than done. Especially now because of recent changes in tax rules and problems stemming from the pandemic.
And anybody can have problems. President Bill Clinton, for example, nominated Timothy Geithner to be Secretary of the Treasury (and the boss of the boss of the Internal Revenue Service). Geithner had top credentials in the money world but even so it was discovered he had underpaid about $34,000 between 2001 and 2004. The error, mostly involving Social Security payments, is relatively common. Though the amount was higher than usual. By a lot. He apologized for the error, paid the taxes and penalties and went on to become an excellent Treasury Secretary. But for many of us common folk, especially those who do their own taxes, it was sort of comforting. Fast forward to now. Your 2020 taxes. Unlike last year, there is no automatic extension.
It is an especially good idea for people who work for the federal government to pay all their due taxes on time. Members of Congress, many who have major tax issues of their own, love to find and publicize information about the number and location of feds who are delinquent, or worse. Bottom line — get it done correctly. So we called the cavalry, and Tom O’Rourke answered. He’s a well known estate and tax attorney in the D.C. metro area and a former attorney with the IRS. He’s going to be my guest on today’s Your Turn show — the first of a two-parter about your 2020 taxes. The show begins at 10 a.m. EST. You can listen live here or on the radio at 1500 AM if you are in the Washington D.C. area. If you have questions for Tom, shoot them to me before air time.
Tom says there are two main issues in doing your taxes. Staying out of trouble with the IRS and minimizing your tax liability legally. O’Rourke says:
“Staying out of trouble with the IRS is simple – make sure you comply with the law. This is as easy as observing the following guidelines:
- Report all of your income. There is a strong likelihood that IRS already knows virtually all items of your income and deduction, and if you fail to report income you are likely to get a letter from them along with a bill for any tax due on the unreported income.
- Claim only those deductions you are legally entitled to and for which you have adequate substantiation. As a result of changes to the law enacted in 2017, many taxpayers may now find it to be in their best interest to simply claim the standard deduction. This not only makes preparation of your return easier, it also eliminates the need to retain back-up information to support any deductions you may claim.
- The key itemized deductions individual taxpayers are entitled to claim in 2018 and later years are as follows:
- Medical expenses in excess of 7.5 % of your adjusted gross income (AGI).
- State and local taxes not to exceed $10,000 per return.
- Home mortgage interest on mortgage debt of up to $750,000.
- Interest on a home equity loan, but only if the loan proceeds were used to maintain or improve your home.
- Charitable contributions to an organization that is exempt from tax. You need to make sure you have adequate back-up information. If you have made donations of property for which you claimed a deduction of $500 or more you may need to get an appraisal from a “qualified appraiser.”
- The Tax Cuts and Jobs Act of 2017 eliminated the category of “miscellaneous itemized deduction” for the period from 2018 through 2025.
- File your tax return on time. The filing deadline for 2019 return was extended to July 15, 2020 for all taxpayers, but your 2020 tax return is due by not later than April 15, 2021. You may get an automatic extension to file until October 15, 2021 merely by requesting. If you do request an extension, you should remit of any tax you estimate to be due along with request for extension.
- If possible file your return electronically. This will help speed the issuance of any refund you may be entitled to.
- Remit full payment of any amount you owe at the time you file your return. If you simply don’t have the money to pay your tax in full, pay much as you can and request to pay any balance due in installments. The IRS generally grants any request to pay in installments if you propose to pay all liability within 6 months.
- The biggest mistake to avoid is to simply not file if you can’t afford to pay your taxes. There is a failure to file penalty of 5% per month (not to exceed a 25%). Failing to file your return may also adversely impact your continued eligibility for federal employment.
If you follow these tips, you will stay out of trouble with the IRS. If you have any tax related questions you may wish to consult the IRS website. There are many publications that address virtually all tax issues.”
Nearly Useless Factoid
By Alazar Moges
The Pledge of Allegiance was written for the 400th anniversary, in 1892, of the discovery of America. A national committee of educators and civic leaders planned a public-school celebration of Columbus Day to center around the flag. Included with the script for ceremonies that would culminate in raising of the flag was the pledge. Controversy continues over whether the author was the chairman of the committee, Francis Bellamy — who worked on a magazine for young people that published the pledge — or James Upham, who worked for the publishing firm that produced the magazine. The pledge was published anonymously in the magazine and was not copyrighted.
Source: Department of Veterans Affairs