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It's Tax Season: Here's What You Need to Know

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Note: All tax deadlines contained in this article are the deadlines set forth by the IRS. In the event of any changes to the 2020 IRS tax filing deadlines, we’ll update the below information as soon as possible. 

Whether you’re a first-time tax filer or an old hand, tax season can feel overwhelming when you’re getting hit with forms, due dates and tax jargon left and right. That’s why we’ve put together this guide to help make the tax preparation process a little less intimidating and confusing, especially if you’re taking the DIY route on your personal return this year. If you’re getting an assist from a tax professional, you should be in good hands, as the pros know the drill well.

So what’s in this guide?

Scintillating topics like the federal income tax brackets, tax deductions versus credits, audits and more. Don’t worry, we explain everything in plain English to help you get a better understanding of your taxes.

Let’s dive in!

What we’ll cover:

When is tax season? Important tax dates to know in 2020

Tax season can be a stressful time.

Below are some key federal tax dates to keep in mind for 2020. We put these deadlines up top so that you can plan accordingly and avoid any surprises. Starting your taxes early can save you from the stress of having to scramble at the last minute and the risk of having to pay penalties for missing deadlines.

January 15, 2020: 4th quarter of 2019 estimated tax payment due

Note: Generally, estimated tax payments are required for individuals who do not pay income taxes for the year through withholding — for example, those who are self-employed or earn income that isn’t from an employer (e.g., investments, alimony, etc.). Consult the IRS for more details on who has to pay estimated taxes.

July 15, 2020: Federal Taxes Due

  • 2019 individual tax returns due (individuals who need more time may request an extension by filing Form 4868)
  • 2019 individual income tax payments due
  • 2020 first-quarter estimated tax payments due

 

Good to know: On March 21, 2020, the U.S. Treasury Department and IRS announced that the federal government is moving Tax Day from April 15 to July 15. As a result, federal tax filings and income tax payments (including estimated tax payments) are now due on July 15, instead of April 15. For more information, see the Treasury’s announcement here and the IRS update here.

Keep in mind that tax deadlines are always subject to change, and the IRS is the official source for the most up-to-date information.

January 15, 2020: 

4th quarter of 2019 estimated tax payment due

Note: Generally, estimated tax payments are required for individuals who do not pay income taxes for the year through withholding — for example, those who are self-employed or earn income that isn’t from an employer (e.g., investments, alimony, etc.). Consult the IRS for more details on who has to pay estimated taxes.

July 15, 2020:

Federal Taxes Due

  • 2019 individual tax returns due (individuals who need more time may request an extension by filing Form 4868)
  • 2019 individual income tax payments due
  • 2020 first-quarter estimated tax payments due

Good to know: On March 21, 2020, the U.S. Treasury Department and IRS announced that the federal government is moving Tax Day from April 15 to July 15. As a result, federal tax filings and income tax payments (including estimated tax payments) are now due on July 15, instead of April 15. For more information, see the Treasury’s announcement here and the IRS update here.

Keep in mind that tax deadlines are always subject to change, and the IRS is the official source for the most up-to-date information.

A refresher on tax basics: federal income tax brackets, deductions and credits

During tax season, you’ll likely hear terms like “tax brackets,” “deductions” and “credits.” And it’s because all three affect your tax liability – in other words, the amount of taxes you owe to the federal government in a given tax year.  

Federal income tax brackets

At some point in your life, you might be asked which tax bracket you’re in. Your tax bracket, also known as your “marginal tax rate,” is based on your income and filing status (e.g., single, married filing jointly, etc.). It helps to determine the amount of taxes you owe each year.

For the 2019 tax year, there are seven federal tax brackets, or rates, 10%, 12%, 22%, 24%, 32%, 35%, 37%. The amount of your tax bill is calculated, in part, by applying these rates to your annual taxable income.

US federal tax rates are progressive. That means the higher your taxable income, the higher your tax rates will be.

To figure out which bracket you’re in, consult the IRS 2019 federal income tax rates. For example, a single filer with a taxable income of $32,000 in 2019 is in the 12% bracket.

But just because a taxpayer falls into the 12% bracket doesn’t mean that their entire taxable income is taxed at 12%. This is a common misunderstanding. Many people don’t realize that different portions of your taxable income are taxed at different rates based on the federal tax bracket table.

Heads up, we’re about to do some math. 

So sticking with the single-filer with $32,000 example. For the 2019 tax year, the first $9,700 of that taxable income would be taxed at 10%. The remaining $22,300 ($32,000 - $9,700 = $22,300) would be taxed at 12%.

Many people don’t realize that different portions of your taxable income are taxed at different rates based on the federal tax bracket table.

See, that wasn’t so bad. 

The IRS typically adjusts the federal tax brackets each year for inflation, in case you’re wondering why brackets seem different this year. Curious about how much the rates have changed between the 2018 and 2019 tax years? See our 2018-2019 Federal Tax Brackets comparison table.

Deductions vs. credits

Now you understand how taxable income can affect your tax rates. You might be wondering if there are ways to lower your taxable income and your overall tax bill.

This is where tax deductions and credits come into play. Since they could both help reduce the amount of taxes you pay, it can be easy to mix up the two. But a deduction and credit work differently to lower your tax bill.

A tax deduction could lower your overall tax bill by reducing your taxable income. You may already be familiar with the standard deduction. That’s because when you’re doing your personal taxes, you need to decide between taking the standard deduction or itemizing your deductions.

Other common deductions include the charitable contribution deduction, IRA contribution deduction, and mortgage interest deduction.

A tax credit, on the other hand, directly lowers your tax bill, dollar-for-dollar. So if you’re eligible to claim a $500 credit on your tax return and you owe $1,500 in taxes, that credit could reduce your tax bill to $1,000 ($1,500 - $500).

Bear in mind that the full list of available deductions and credits is long. And their amounts vary across the board. It’s unlikely that you’re going to be eligible for every deduction and credit that’s out there – they typically come with specific qualification rules. So it’s a good idea to confirm eligibility details with the IRS or a tax professional before going on a deduction/credit-hunting spree on your tax return.

Preparing your federal tax return

With some of the most important tax terms and concepts nailed down, don’t you already feel a little bit better and maybe even energized about doing your taxes this year?

No? Fair enough, because you still have to go through the paperwork, assemble your documents and actually fill out the necessary tax forms. We admit that this is no fun at all. But you don’t have to tackle it all in one sitting if you start ahead of time.

If your taxes are complex or if your organization system is nothing more than receipts and statements crammed into a shoebox (no matter how fancy), you may want to budget a little extra time. For reference, you may also want to bookmark this IRS tax information webpage for individuals filing a return.

Regardless of your situation, tax preparation generally involves four key steps:

  1. Gather your tax documents and financial statements
  2. Complete your tax forms
  3. Assemble and file your tax return
  4. Receive your refund (if you’re eligible)

Learn more about each of these steps: Your Tax Return in Four Steps

Getting a tax refund?

If you’re getting a refund this year, hooray! Because not everyone gets a refund from the government.

Here are some quick stats for you:

Between October 2017 and September 2018, the IRS accepted more than 250 million tax returns and other forms. The agency issued more than 120 million individual income tax refunds, totaling approximately $395 billion. Not bad at all . . .

If you’re expecting a refund, sure, you could buy yourself something nice with that extra cash. But how about really treating yourself (and future self) by putting that money away in your savings or retirement accounts? We have some ideas on how to put that money to work:

  1. Maximize your contribution to your 401(k) or IRA
  2. Open a CD account and put a CD strategy in play
  3. Open a high-yield savings account
  4. Invest your refund
  5. Pay down your debt

Getting a refund this tax season? Make your money go further when you open a Marcus Online Savings Account.

Where’s my tax refund?

The IRS usually issues refunds in less than 21 days. But just remember: The refund process could take longer for a number of reasons – for instance, if the return was incomplete or contained significant errors.

If you’re hankering for a status update though, you can use the IRS refund tracker. To use the tool, you need your Social Security number (or individual taxpayer identification number), filing status and exact refund amount.

Keeping tax records

While you’re waiting for your refund, it’s a good time to reorganize the tax documents and forms you’ve used for the tax season. We joked about the shoebox filing system earlier, but if this is you, there’s no time like the present to start a new organization system.

No matter which organization method you use, the goal is to be able to find the documents you need quickly and easily. This is in case you ever need to:

  • Respond to IRS questions or audit
  • Amend a tax return
  • Prepare for next year’s return
  • Provide tax information for certain applications (e.g., home loan, financial aid, etc.)

Another important thing to keep in mind is to store your records in a safe and secure place.

Amending a federal tax return

As you’re putting your tax documents away, you might realize you made a mistake on your return. Don’t panic.

Generally, if you need to go back and claim a credit or refund, you have up to three years from the original filing date to make any necessary corrections by submitting an amended tax return. US tax laws are complicated, so mistakes can totally happen (and they do!). So don’t beat yourself over it.

First, use the IRS Interactive Tax Assistant tool to see if you even need to file an amendment. That’s because if it’s a simple math error, you probably won’t need to file an amended return. The IRS usually corrects minor mathematical and clerical errors for you.

That said, here are some common reasons why you may need to file an amended return: Changes or corrections to your filing status , income, credits, deductions or number of dependents. If you do need to file an amended return, fill out and submit IRS Form 1040X.

IRS audits

IRS audits are the bogeymen of tax season. The dread is understandable given how audits are typically depicted in popular culture. Take a deep breath. Here are the most important things you need to know about audits:

  • IRS audits are not as scary as you might think. They’re the IRS way of double checking your returns.
  • The chances of being selected for an IRS audit are low. In 2017, the IRS audit rate was about 0.5%.
  • Not every audit requires sitting across the table with someone from the IRS – some audits are conducted by mail.
  • You can challenge IRS audit findings.

Here’s your tax season knowledge badge

Congratulations! You’ve reached the end of our article. Hopefully at this point, tax talk no longer sounds like a completely foreign language. Our ultimate goal is to equip you with some basic tax knowledge, so that you can get your bearings and start the tax season with confidence.

Can’t get enough of our tax explainers? Here’s a couple more on the bonus tax and personal exemption.

Bear in mind that taxes are complicated, and the laws are always subject to change. Your best source of information on the latest tax rules is the IRS or a certified tax professional.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.