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Taxpayers should stay on top of taxes all year
to avoid a surprise tax bill

The next tax season seems far away, but this is actually the perfect time for taxpayers to review their withholding and estimated tax payments. Because federal taxes are pay-as-you-go, it’s important for taxpayers to withhold enough from their paychecks or pay enough in estimated tax. If they don’t, they risk being charged a penalty.

Adjust tax withholding
For employees, withholding is the amount of federal income tax withheld from their paycheck. The amount of income tax an employer withholds from an employee’s regular pay depends on two things:

  • The amount they earn.

  • The information they give their employer on Form W–4.

All taxpayers should review their federal withholding each year to make sure they're not having too little or too much tax withheld.

Individuals can use the IRS Tax Withholding Estimator to help decide if they should make a change to their withholding. This online tool guides users, step-by-step, through the process of checking their withholding, and provides withholding recommendations to help aim for their desired refund amount when they file next year.

Taxpayers can check with their employer to update their withholding or submit a new Form W-4, Employee's Withholding Certificate.

Make estimated payments
Taxpayers may need to make quarterly estimated tax payments in a few situations:

  • If the amount of income tax withheld from a taxpayer's salary or pension isn’t enough.

  • If they receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards.

  • If they are self-employed.

Estimated tax payments are due from individual taxpayers on April 15, June 15, September 15 and January 17. The fastest and easiest way to make estimated tax payments is using Direct Pay or the Electronic Federal Tax Payment System. Taxpayers can visit IRS.gov for other payment options.

Important tax reminders for people selling a home
 

A lot of families move during the summer. Taxpayers who are selling their home may qualify to exclude all or part of any gain from the sale from their income when filing their tax return. Here are some things that homeowners should think about when selling a home:

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Ownership and use
To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

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Gains
Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.

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Losses
Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

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Multiple homes
Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

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Reported sale
Taxpayers who don’t qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S, Proceeds from Real Estate Transactions must report the sale on their tax return even if they have no taxable gain.

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Mortgage debt
Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged, in whole or in part, on a qualified principal residence can’t exclude it from income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

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Possible exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community and Peace Corps workers.

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Worksheets
Worksheets included in Publication 523, Selling Your Home can help taxpayers figure the adjusted basis of the home sold, the gain or loss on the sale, and the excluded gain on the sale.

Get ready to file taxes:

What to do before the tax year ends

 

 

There are things taxpayers can do before the end of the year to help them get ready for the 2021 tax filing season. Below are a few of them.

Donate to charity
There is still time to make a 2020 donation. Taxpayers who don't itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying charities. Cash donations include those made by check, credit card or debit card. Before making a donation, people can check the Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax-deductible donations.

The Coronavirus Aid, Relief, and Economic Security Act changed this law. The CARES Act also temporarily suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
 
Report any name or address change
Taxpayers who moved should notify the IRS of their new address. They should also notify the Social Security Administration of any name change.

Renew expiring ITINs
Certain Individual Taxpayer Identification Numbers expire at the end of this year. Taxpayers can visit the ITIN page on IRS.gov for more information on which numbers need renewal.

Connect with the IRS
Taxpayers can use social media to get the latest tax and filing tips from the IRS. The IRS shares information on things like tax changes, scam alerts, initiatives, tax products and taxpayer services. These social media tools are available in different languages, including English, Spanish and American Sign Language.

Find information about retirement plans
IRS.gov has end-of-year find tax information about retirement plans. This includes resources for individuals about retirement planning, contributions and withdrawals. The CARES Act retirement plan relief waived required minimum distributions during 2020 for IRA or retirement plan accounts. Also, eligible individuals can take a coronavirus-related distribution of up to $100,000 by December 30, 2020 and repay it over three years or pay the tax due over three years.

Contribute salary deferral
Taxpayers can make a salary deferral to a retirement plan. This helps maximize the tax credit available for eligible contributions. Taxpayers should make sure their total salary deferral contributions do not exceed the $19,500 limit for 2020.

Think about tax refunds
Taxpayers should be careful not to expect getting a refund by a certain date. This is especially true for those who plan to use their refund to make major purchases or pay bills. Just as each tax return is unique to the individual, so is each taxpayer's refund. Taxpayers can take steps now to get ready to file their federal tax return in 2021.

More Information:
About Schedule A, Form 1040, Itemized Deductions
Tax Topic No. 500, Itemized Deductions
Charitable Contribution Deductions
Interactive Tax Assistant

Apply for or renew your ITIN

 

  • If your ITIN wasn’t included on a U.S. federal tax return at least once for tax years 2018, 2019, and 2020, your ITIN will expire on December 31, 2021. ITINs with middle digits (the fourth and fifth positions) “70,” “71,” “72,” “73,” “74,” “75,” “76,” “77,” “78,” “79,” “80,” “81,” “82,” “83,” “84,” “85,” “86,” “87,” or “88” have expired. In addition, ITINs with middle digits “90,” “91,” “92,” “94,” “95,” “96,” “97,” “98,” or “99,” IF assigned before 2013, have expired. 

  • Note: If you previously submitted a renewal application and it was approved, you do not need to renew again.  Otherwise, you should submit a completed Form W-7, Application for IRS Individual Taxpayer Identification Number, US federal tax return, and all required identification documents to the IRS.

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