FAQs on the Early Release of the 2020 Form W-4

The following article was published by the IRS.

1. Why redesign Form W-4?
The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

2. What happened to withholding allowances?
Allowances are no longer used for the redesigned Form W-4 to increase transparency, simplicity, and accuracy. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.

Sudden Money: Managing a Windfall

Striking it big with the lottery is a dream for many, but a reality for few. But the fact is, you are far more likely to receive a sudden windfall of money from another source than the lottery. Whether it be an inheritance, a bonus at work, or a tax refund, it is important to know what to do when you become the fortunate beneficiary of a large sum of money.

The rules of how to handle a windfall are the same whether it be $3,000,000 or $3,000:

• Rule 1: Do Nothing. No exotic trips, no loans to family. Take at least a month to plot your course, more if the sum is substantial.
• Rule 2: Pay Off Debt. When you start spending the money, the first thing you should do is pay off creditors.
• Rule 3: Have Fun. That is, after all, one of the main things in life. Buy something you’ve always wanted, or take a trip somewhere you’ve never been.
• Rule 4: Invest. If you don’t know how, learn. If you don’t know what to do, find an expert who does. No matter what, get a fee-based financial planner, not one who works off commissions.

Bottom line: when money falls in your lap unexpectedly, take your time, get out of debt, have fun, and invest for your future.

Taxpayers Should Be on the Lookout for New Versions of These Two Scams

The following article was published by the IRS.

With scam artists hard at work all year, taxpayers should be on the lookout for a surge of evolving phishing emails and telephone scams.

Taxpayers should watch for new versions of two tax-related scams. One involves Social Security numbers related to tax issues. The other threatens taxpayers with a tax bill from a fictional government agency. Here are some details about these scams to help taxpayers recognize them:

Individual Taxpayer Identification Number (ITIN)

The following video was published by the IRS

The Individual Taxpayer Identification Program (or ITIN for short) is for people who must file or pay U.S. taxes but who are not eligible for a SSN. A change in the law required ITINs issued before 2013 to expire, and the IRS is renewing them over several years based on their middle digits.

If your ITIN is or has been up for renewal and you will have a filing requirement, you should submit a W-7 ITIN Renewal Application. Those ITINs with middle digits 83, 84, 85, 86, and 87 will expire at the end of this year. They can be renewed now along with any ITINs that expired in earlier years.

Business Taxpayers Should Take Another Look at Their Estimated Tax Payments

The following article was published by the IRS.

Taxpayers who pay quarterly estimated tax payments may want to revisit the amount they pay.

The Tax Cuts and Jobs Act changed the way most taxpayers calculate their tax. These taxpayers include those with substantial income not subject to withholding, such as small business owners and self-employed individuals.

The tax reform changes include:

• Revised tax rates and brackets
• New and revised business deductions
• Limiting or discontinuing deductions
• Increasing the standard deduction
• Removing personal exemptions
• Increasing the child tax credit

As a result of these changes, many taxpayers may need to raise or lower the amount of tax they pay each quarter through estimated taxes.