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Posted on: March 5, 2020 by Huntersure
The 2020 tax season is officially here, which means it’s the perfect time to go over certain hiccups that could occur in the process of filing taxes. No one wants to get hit with a fine or notice of audit, so being on top of what to expect when filing and what to look out for can help to avoid potential legal and financial pitfalls this tax season.
And while it’s good for individuals to be aware of the risks of making a mistake on their tax submission, tax professionals also face a number of potential risks. Here are some things that tax preparers and individuals alike should be aware of.
Before tax preparers start to break out their tax software and go over every line with their clients, they need to make sure they are operating under as much professional protection as possible. Having tax preparer insurance will help to provide resources needed to operate without the worry of facing stiff penalties.
Mistakes happen, but they could end up costing a tax preparer their job. Having this kind of insurance will help to keep liabilities low while protecting their clients’ information and finances in the process.
The changes to the Tax Code stemming from the recent Tax Cuts and Jobs Act went into effect during the 2018 tax season. However, some didn’t come active until 2019, one of those being the change to the shared responsibility payment.
The shared responsibility payment, also known as the individual mandate penalty, was previously introduced under the Affordable Care Act and requires people to have some form of health insurance. If a taxpayer couldn’t prove they had health insurance during that year, they owed a penalty. Starting this year, there’s no longer a federal penalty, but there are still some state-based penalties to be aware of.
On top of increasing the amount of money taxpayers can contribute to qualifying retirement plans, health savings accounts, or HSA’s, are also seeing an increase in 2020. For those with high-deductible policies that qualify under certain HSA guidelines, the changes include a self-only coverage and family coverage.
Starting in 2020, taxpayers are able to save more money in tax-advantaged retirement accounts. This could allow individuals to lower their tax rate. The 401(k) base contribution is up to $19,000 as the 401(k) catch-up contribution is staying put at $6,000.
For those with an IRA base contribution, they can see their limit rise to $6,000, up from $5,500 in 2018.
Threshold deductible has seen a lot of up and down movement in recent years when it comes to medical and dental expenses. In 2010, for instance, the Affordable Care Act raised the number from 7.5 percent to 10 percent of adjusted gross income. After the Tax Cuts and Jobs Act, the threshold was taken back down to 7.5 percent before returning to 10 percent.
What this means is that if a taxpayer plans on itemizing this year, their unreimbursed medical and dental expenses need to go past 10 percent of their adjusted gross income in order to take advantage of a deduction.
This is where individuals who hire tax preparers need to be as open and transparent as possible when it comes to covering all the bases. In this new age of income, with gig work and side work as major contributors, counting and reporting every penny is important.
Most people used to be either strictly W-2 or 1099 when submitting their income. But as the gig economy has expanded, more and more people fall under both categories with multiple revenue streams coming into the picture. Tax preparers should be on top of this and should expect to see less-organized taxpayers this year.
Huntersure LLC is a full-service Managing General Agency that has provided insurance program administration for professional liability products to our partners across the United States since 2007. We specialize in providing insurance solutions for businesses of all sizes. Our program features can cover small firms (grossing $2.5 million annually) to large corporations (grossing $25 million annually or more). We make doing business with us easy with our breadth and depth of knowledge of E&O insurance, our proprietary underwriting system that allows for responsive quoting, binding and policy issuance and tailored products to meet the needs of your insureds. Give us a call at (855) 585-6255 to learn more.
Posted in: Professional Liability