Getting Ready for Tax Season 

Get Ready for Your 2024 Taxes

January, 2025 | By O Vazquez

Be sure to have the following items ready for preparing your 2024 tax returns:

New Clients

• Please have a copy of your 2023 tax returns (or the last year you filed)

Income Documents

• W-2 form(s) from your employer(s)

• 1099-G form if you received unemployment benefits in 2024

• 1099-SSA if you received Social Security in 2024

• 1099-R if you received retirement or pension payments

• 1099-K if you received payments from PayPal, Venmo, Square, etc.

• Any other 1099s you received for interest, investment income, etc.

• Income & expenses from self-employment or rental properties

Deductions

• Be sure to notify your tax preparer of any changes in your family (marriage, divorce, new children, etc.) during 2024

• 1098 Form(s) received for Mortgage Interest paid in 2024

• The amount you paid for Property Taxes in 2024. Note: If you paid in two installments, this will usually be Installment 2 of your 2023-24 tax bill, and Installment 1 of your 2024-25 tax bill.

• Charitable contributions you made in 2024

• Auto Registration renewal statement(s) received from the DMV in 2024

Health Care

• Although there is no longer a Federal mandate for health insurance, California still requires everyone on your tax return (including your spouse and dependents) to have health coverage or you may have to pay a fine.

• If you receive health coverage through your employer, please provide Form 1095-B to your tax preparer. Your employer should have given you this form.

• If you obtained health coverage from Covered California, please provide Form 1095-A to your tax preparer. Covered California mailed you this form in January. If you have not received it, please click here for instructions.

Identity Protection PIN

• If you have experienced identity theft, the IRS may issue you an Identity Protection PIN. You will receive a new IP PIN each year. The IRS will send you a letter in the mail in January with your IP PIN. This is required to file your tax returns. If you received an IP PIN in the mail, please provide it to your tax preparer.

• If you did not receive your IP PIN or you lost it, click here to retrieve it or have a new one issued to you by the IRS.

Understanding Extensions

The due date for 2024 personal tax returns is Tuesday, April 15, 2025.

An extension gives you extra time to file your tax returns without having a late filing penalty, as long as you file before the extended due date.

To get an extension, you must request it on or before the regular due date of your return.

For individual taxpayers, your extension gives you until October 15 to file your returns.*

However, please note that an extension does not give you more time to pay any tax due. The due date for payments is still April 15.

If you pay after April 15, even if you have an extension, you will have to pay a late payment penalty, plus interest, on the unpaid balance until it is paid off.

Exception: If you live in Los Angeles County the IRS has granted an automatic extension until October 15, 2025 to file and pay your 2024 taxes due to the wildfire disaster. You do not need to request this extension, it will apply automatically to residents with a Los Angeles County zip code.

How to Reduce or Eliminate Late Payment Penalties

To reduce or eliminate late payment penalties, you have a couple of options:

• Make a payment with your extension. This can be arranged with your tax preparer at the time you file your extension. Or you can make a payment online at the IRS website. Be sure to specify that you are making an Extension payment for 2024.
  What if I don’t know how much tax I will owe? Your tax preparer can help you estimate what you might owe, or you can start with the tax you owed last year and adjust it depending on whether your income went up or down this year. It is better to pay something even if you don’t know exactly how much it will be. If you overpay, you will receive a refund. If you underpay, your penalty will be based only on the amount you are short, so it will be much less than it would be if you don’t pay anything.

• Request a payment plan. This can be done online at the IRS website. You will still pay penalties and interest on the unpaid portion, but your balance will go down each month so your penalties and interest will decrease. As long as you keep up your monthly payments, the IRS will not pursue collection actions against you. You can always make extra payments or pay off the balance any time to stop additional penalties from accruing.

• Increase your withholding or make estimated tax payments. This option won’t help this year, but it will help you avoid penalties next year. If you are paying enough during the year to cover your tax, you don’t have to worry about penalties if you get an extension.

How Much are the Penalties?

• The late filing penalty is 5% of your unpaid tax for each month (or part of the month) your return is late.
  For example, if your tax is $1,000 your late filing penalty will be $50 if you file between April 16 and May 15, $100 if you file between May 16 and June 15, $150 if you file between June 16 and July 15, etc. The maximum is 25%.

• The late payment penalty is 0.5% (one half of 1 percent) of your unpaid tax for each month (or part of the month) your payment is late.
  For example, if your tax is $1,000 your late payment penalty will be $5 if you pay between April 16 and May 15, $10 if you pay between May 16 and June 15, $15 if you pay between June 16 and July 15, etc.

• Interest is also charged on your unpaid tax. The annual interest rate is currently 7%.

So you can see, the late filing penalty is much higher than the late payment penalty (10 times higher, to be precise). Therefore, it is better to file your returns on time (or get an extension and file before the extension due date) and pay late, than it is to file your returns late.

* Other due dates:

• If you lived and worked outside of the U.S. last year, your due date to file and pay is June 16 this year. This extension is automatic. You can still request an extension until October 15, as long as you request it by June 16.

• For regular corporations (Form 1120), the extended due date is October 15.

• For partnerships (Form 1065) and S corporations (Form 1120S), the extended due date is September 15.

• For trusts and estates (Form 1041), the extended due date is September 30.

• For nonprofit information returns (Form 990) the extended due date is November 17.

When the due date falls on a weekend or holiday, the due date is the next business day.

About the Estimated Tax Penalty

If you are an employee who receives a W-2 from your employer, money is withheld from your paychecks to cover your taxes at the end of the year.

If you have withheld enough, then you will not owe any taxes, and you might even get a refund if you have withheld more than the taxes you owe.

However, if you have not withheld enough, then you will owe taxes when you file your tax returns.

But even if you are withholding from your paychecks, you might still owe taxes at the end of the year. For example, if you have significant investment income like interest, dividends, or capital gains from the sale of stocks. If you are self-employed or have income from rental properties, you might also owe taxes at the end of the year. Or if the withholding on your W-4 form is not enough for your filing status, you still could owe.

What are Estimated Taxes?

If you are making money without withholding, the IRS still wants you to pay taxes throughout the year instead of waiting until the end of the year to pay it all at once. Just as they get money from employees all year ’round, they want money from people making other types of income all year ’round as well. These payments are called estimated taxes.

Estimated taxes are due quarterly, specifically:

• April 15

• June 15

• September 15

• January 15

Yes, I know this is not really quarterly as some payments are due more or less than 3 months apart, but that’s just the way it is.

What is the Estimated Tax Penalty?

If you do not make estimated taxes when you are supposed to, then the IRS (and many states as well) will charge you an estimated tax penalty. Specifically, if you owe more than $1,000 in Federal tax with your tax return, you will owe the Federal estimated tax penalty. If you owe more than $500 in California taxes, you will owe the California estimated tax penalty as well.

Often, this penalty is calculated on your tax return and added to the amount you owe. The calculation is based on the current interest rates, and is currently about 5.3% of the tax you owe.

NOTE: In 2023, most residents of California received an automatic extension until November 15, 2023 to file and pay their 2022 taxes. This extension applied to 2023 estimated taxes as well. This means that the automatic calculation of the Estimated Tax Penalty on the 2023 tax return was too high (because it is based on the first quarterly payment being due April 15). Therefore, if you had an estimated tax penalty on your 2023 return, you will probably get some of it refunded.

If you did not include the Estimated Tax Penalty on your 2023 tax return, then the IRS will send you a bill for this penalty. Some bills this year say that the estimated tax payment was “miscalculated” on the tax return. However, it is the IRS who originally miscalculated the penalty for California residents based on the normal due date of April 15. The notices now have the correct penalty based on the extended due date.

You can check to see if you paid the estimated tax penalty by looking at Line 38 on your Form 1040 tax return. If this line is blank, you did not already pay the penalty. If Line 37 is over $1,000 then the IRS will send you a bill if you owe an estimated tax penalty.*

*Note: Under some circumstances you might not owe a penalty even if you owe over $1,000. For example, if you owed no tax last year, or if you withheld at least as much as you owed the previous year.

How do I avoid the Estimated Tax Penalty?

• If all or most of your income comes from W-2 employment, and you are not withholding enough to cover your taxes, you need to submit a new Form W-4 to your employer to adjust your withholding. Your tax preparer should be able to help you complete your W-4 so that you don’t owe next year.

• If you are self-employed or have significant income without withholding, you should make quarterly estimated payments. Your tax preparer can prepare vouchers for you which you can send in with your check on each due date. You can also make estimated tax payments online at the IRS website. If I prepare and e-file your tax returns, I can also have your payments automatically withdrawn from your bank account on the due dates so you don’t have to remember to do it yourself.

IF IN HESITATION, GUARD YOUR INFORMATION 

Federal law mandates the retention of tax returns and related documents for a period of three years, known as the 'three-year law.' This guideline often gives a false sense of security, as people believe they are compliant as long as they keep records for this duration. Even if the original records are in paper form, they can be digitized by scanning. Once converted to electronic format, taxpayers can save them on a backup storage device like an external hard drive, or they can be burned onto a labeled CD or DVD. Creating an electronic backup of records, including bank statements, tax returns, and insurance policies, is now more convenient with many financial institutions offering electronic statements and documents. Additionally, much financial information is accessible online. Consider exploring online backup options, providing the utmost protection for data by storing files in a different geographic region. This ensures the safety of documents even in the face of natural disasters such as hurricanes. 

Federal law mandates the retention of tax returns and related documents for a period of three years, known as the 'three-year law.' This guideline often gives a false sense of security, as people believe they are compliant as long as they keep records for this duration. Even if the original records are in paper form, they can be digitized by scanning. Once converted to electronic format, taxpayers can save them on a backup storage device like an external hard drive, or they can be burned onto a labeled CD or DVD. Creating an electronic backup of records, including bank statements, tax returns, and insurance policies, is now more convenient with many financial institutions offering electronic statements and documents. Additionally, much financial information is accessible online. Consider exploring online backup options, providing the utmost protection for data by storing files in a different geographic region. This ensures the safety of documents even in the face of natural disasters such as hurricanes. 

Beware: Identity theft poses a significant risk in the present day, and it's crucial to exercise utmost caution. Once your tax records, financial statements, or any documents containing personal information are no longer needed, ensure safe disposal by shredding them instead of discarding them casually in the trash. 

If the IRS suspects substantial underreporting of income (25 percent or more) or detects potential fraud, they may extend the audit period to six years. For added security, adhere to the following guidelines. 

Document Retention Guidelines

• Documents to Keep for One Year:

Correspondence with Customers and Vendors

Duplicate Deposit Slips

Purchase Orders (other than Purchasing Department copy)

Receiving Sheets

Requisitions

Stenographer's Notebooks

Stockroom Withdrawal Forms

• Documents to Keep for Three Years:

Employee Personnel Records (after termination)

Employment Applications

Expired Insurance Policies

General Correspondence

Internal Audit Reports

Internal Reports

Petty Cash Vouchers

Physical Inventory Tags

Savings Bond Registration Records of Employees

Time Cards for Hourly Employees

• Documents to Keep for Six Years:

Accident Reports, Claims

Accounts Payable Ledgers and Schedules

Accounts Receivable Ledgers and Schedules

Bank Statements and Reconciliations

Cancelled Checks

Cancelled Stock and Bond Certificates

Employment Tax Records

Expense Analysis and Expense Distribution Schedules

Expired Contracts, Leases

Expired Option Records

Inventories of Products, Materials, Supplies

Invoices to Customers

Notes Receivable Ledgers, Schedules

Payroll Records and Summaries, including payment to pensioners

Plant Cost Ledgers

Purchasing Department Copies of Purchase Orders

Sales Records

Subsidiary Ledgers

Time Books

Travel and Entertainment Records

Vouchers for Payments to Vendors, Employees, etc.

Voucher Register, Schedules

• Special Circumstances:

Car Records (keep until the car is sold)

Credit Card Receipts (keep with your credit card statement)

Insurance Policies (keep for the life of the policy)

Mortgages / Deeds / Leases (keep 6 years beyond the agreement)

Pay Stubs (keep until reconciled with your W-2)

Property Records / improvement receipts (keep until property sold)

Sales Receipts (keep for the life of the warranty)

Stock and Bond Records (keep for 6 years beyond selling)

Warranties and Instructions (keep for the life of the product)

Other Bills (keep until payment is verified on the next bill)

Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

• Personal Documents to Keep for One Year:

Bank Statements

Paycheck Stubs (reconcile with W-2)

Canceled Checks

Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year-end statement)

• Personal Documents to Keep for Three Years:

Credit Card Statements

Medical Bills (in case of insurance disputes)

Utility Records

Expired Insurance Policies

• Personal Documents to Keep for Six Years:

Supporting Documents for Tax Returns

Accident Reports and Claims

Medical Bills (if tax-related)

Property Records / Improvement Receipts

Sales Receipts

Wage Garnishments

Other Tax-Related Bills

• Personal Documents to Keep Forever:

CPA Audit Reports

Legal Records

Important Correspondence

Income Tax Returns

Income Tax Payment Checks

Investment Trade Confirmations

Retirement and Pension Records

• Business Records to Keep Forever:

While federal guidelines do not require keeping tax records 'forever,' there are often other reasons to retain these documents indefinitely.

Audit Reports from CPAs/Accountants

Cancelled Checks for Important Payments (especially tax payments)

Cash Books, Charts of Accounts

Contracts, Leases Currently in Effect

Corporate Documents (incorporation, charter, by-laws, etc.)

Documents substantiating fixed asset additions

Deeds

Depreciation Schedules

Financial Statements (Year End)

General and Private Ledgers, Year End Trial Balances

Insurance Records, Current Accident Reports, Claims, Policies

Investment Trade Confirmations

IRS Revenue Agents' Reports

Journals

Legal Records, Correspondence, and Other Important Matters

Minute Books of Directors and Stockholders

Mortgages, Bills of Sale

Property Appraisals by Outside Appraisers

Property Records

Retirement and Pension Records

Tax Returns and Worksheets

Trademark and Patent Registrations