When you’re locked down in quarantine, focused on teaching your children, managing the house, and working full-time, it’s easy for tax preparation to become a distant thought. 

It’s possible, though, that focusing on tax preparation right now is a major opportunity for you and your family. You may be due some additional cash from the IRS in the form of a refund that you haven’t yet considered.

You SHOULD be focused on your taxes right now if…

1. You’re not confident in your accountant, or in the relationship you have with your accountant. Do you have a relationship with your accountant throughout the year? Are you self-employed and using TurboTax or H&R Block? 

It’s stunning to me the impact a personal relationship can have on a tax return. Your circumstances stay the same, but your accountant’s awareness of them changes, and when your accountant’s awareness changes, they know what questions to ask, where to look for additional opportunity, and they can use an understanding of your goals, priorities and situation to prepare a better, more efficient tax plan and tax return. 

If you’re preparing your tax return on your own – that is, if you’re using TurboTax or H&R Block, or if you’re simply dropping tax documents off to your accountant at the end of the year and hoping for the best, you may be missing opportunities. 

And, more than that, you may have missed opportunities in a preceding year. From the date you filed your preceding year’s return, you have 3 years to file an amended return and request a refund. This means that if you filed your return on June 12, 2017 for the 2016 tax year, you could file an amended return before June 12, 2020 and be eligible for a refund.

Here’s an example:

Marisa is a self-employed individual, subject to the Self-Employment Tax (15.3%), and in a 25% marginal income tax bracket. Her accountant didn’t spend the time to discuss deductible expenses with her before preparing and filing her return and didn’t identify that she used a portion of her home for exclusively business purposes (a $5,000 deduction), used her car for business purposes throughout the year (a $3,000 deduction), and had ordinary and necessary business expenses she was unaware she qualified to deduct (a $2,000 deduction). Between 2016-2019, she filed an identical tax return and had the same net earnings from self-employment.

Marisa files an amended return for the 2016-2019 tax years claiming the above additional deductions ($10,000 per year). This results in a $4,030 savings for each year, or a refund of $16,120.

This is just an example, but if you’re not in a personal relationship with your accountant, you need to consider a second look, or review. We would be happy to do this for you at no charge, to give you some analysis and identify whether you missed any opportunities in prior years that could result in a refund.

2. You’re a small business owner whose earnings increased in 2019. Maybe your business has been growing and expanding, and 2019 was your best year yet. If that’s the case, you may want to quickly prepare a draft of your 2019 Form 1040, Schedule C and consider an application for a Paycheck Protection Program (PPP) loan. 

The Paycheck Protection Program (PPP) was established under the CARES Act and provides low-interest, forgivable loans to eligible small business owners and self-employed individuals equal to 2.5x average monthly earnings.

Here’s an example:

In 2018, Marisa earned $50,000 in net self-employment earnings. In 2019, she earned $120,000 in net self-employment earnings. Preparing her 2019 Form 1040, Schedule C and using 2019’s net earnings from self-employment to qualify for a Paycheck Protection Program (PPP) loan would result in a $20,833 loan (after income limitations under the program’s guidelines), compared to just $10,417 based on her 2018 Form 1040, Schedule C. That’s an additional $10,416 loan she qualifies for by preparing and filing her 2019 return.

3. You or your spouse either had federal and/or state individual income taxes withheld from your paycheck, or you made one or more quarterly estimated tax payments in 2019. So simple, and this is so often just not considered, I find! If you or your spouse is an employee who receives W-2 compensation from which federal/state individual income taxes are withheld, or if you made one or more estimated tax payments in 2019, you may have overpaid in the year, and you may be due a refund.

The only way to confirm this is to prepare a draft of your individual income tax return. If you’re due a refund, though, I know you would hate to wait until the extended July 15, 2020 filing deadline for federal individual income tax returns (Form 1040) to receive your refund!

If you’re not sure whether this applies to you, or whether you have a potential opportunity, we would love to help. We’ll be happy to provide you a free review of your prior return filings to make sure you collected every benefit you’re entitled to!