2020 is gonna be different, folks. Unless you have been off the planet for the past couple of months, you know that a pandemic of coronavirus has disrupted almost everything, including the IRS. That means you get a little extra time to complete, file, and pay your taxes.
Since the rules seem to change daily, we suggest you monitor the situation for changes, even after reading this. The information in this post is as timely as we can make it, but it’s always a good idea to keep tabs on a moving target.
The Biggest Change Is the Due Date
The federal government has moved the required tax filing and payment date from April 15 to July 15, 2020, for the 2019 tax year. You get almost three extra months to get your taxes prepared, and payment put together. If you pay estimated taxes for 2020, the first installment is also due on July 15.
The July 15 date applies to corporate taxes as well.
The IRS will charge no penalties or interest for the period between April 15 and July 15. This year, we are just going to act like taxes are due in the middle of the summer.
If you need an extension, you must file that by July 15 as well.
In the meantime, here are some last-minute filing tips for 2020.
We say this every year, but, really, it’s the best way to get your taxes filed. You don’t need to go to the post office at midnight on Tax Day and hope it gets postmarked before midnight. You don’t even need to manually fill out your tax paperwork.
Electronic filing also means you can get the IRS going on your refund more quickly than if they had to wade through your paper return. Electronic filing is free, so there are few obstacles to doing your taxes this way.
In fact, if your taxes are simple enough to use the basic Form 1040, some tax preparers may offer free online tax preparation.
Filing electronically every year makes the next year easy as well. You can import all your essential information from last year’s electronic return into this year’s form. It really saves time.
One caveat: if you have had a significant life change since last year, like getting married or divorced, changing jobs, or had children, you may want to start with a fresh return.
Check Your W-4 Withholding
The IRS released a new W-4 form for 2019. If you receive your W-2 and something doesn’t look right, check the IRS tax withholding estimator. If your W-4 has an error, your employer may not have withheld enough payroll taxes. You could be hit with a bigger tax bill than you expected.
With the new form, you need to take care to enter everything accurately. Include your bank interest and anything else that could impact your tax withholdings. If you earn income outside of work and you don’t want your employer to know, use line 4(c) to withhold a flat amount to account for the added income while maintaining your privacy.
Your other option is to pay estimated quarterly taxes on that outside income, so you would have to save up the money yourself.
Get Your Paperwork Together Before You Start
Unless you want to resemble a jack-in-the-box, make sure you have everything together before beginning your tax return. Here are some of the items you need:
- Your personal information, including your social security number
- Income records, including your W-2, Form 1099s, social security income, alimony payments, game winnings, jury duty payment, and payments of virtual currency
- Expense records, including mortgage interest, property taxes, charitable donations, medical expenses, and childcare costs
If you have investment property, canceled debt, or made withdrawals from your retirement accounts, get those income records together, too. Other expense records you might need include student loan interest, higher education expenses, IRA contributions, HSA contributions, and business expenses like travel, equipment, supplies, estimated quarterly tax payments, and a home office deduction.
Don’t forget your Form 1095 that proves you have health insurance.
Contribute to Retirement Savings
You can still lower your tax burden by putting some money into a retirement account, either a 401K or IRA. Individuals can put up to $6,000 annually into a tax-deferred retirement account. If you are over 50, you can place another $1,000 over and above that.
Contributing to an IRA or pre-tax 401K lowers your adjusted gross income, which, in turn, reduces your taxes.
Look Into New and Extended Tax Breaks
Some individual tax breaks were extended into the 2019 tax year:
- Qualified tuition and fees are deductible up to $4,000, and will be again for 2020. There are limitations — married couples filing jointly with an adjusted gross income of $130,000 or individuals with $65,000 or less in AGI are eligible for this break.
- Also, look into the American Opportunity Credit or the Lifetime Learning Credit for more tax savings.
- Energy-efficient home credits may still be eligible for a nonrefundable credit of up to a lifetime total of $500. Look into the details, though. Rules and limitations apply.
- Medical expenses — the floor for deducting medical expenses has been lowered to 7.5% of your adjusted gross income for the 2019 and 2020 tax years.
- Mortgage insurance is still deductible, but only if you itemize. With the new, higher standard deduction, you need to run the numbers to see if itemizing is worth it. The tax break phases out for married filing jointly and single filers once AGI hits $109,000.
Charitable deductions are like mortgage insurance. You can only claim them if you itemize. One strategy could be to put two year’s worth of charitable giving into one, then itemize every other year. Talk to your tax professional about other ways to manage itemizing in the face of the higher standard deductions.
While you don’t need to rush quite so much this year to get your taxes filed and paid, it’s still worth it to get them completed and out of the way as early as possible. With relief legislation passed that provides a stimulus payment to every individual or couple, filing your 2019 taxes ensures the Department of Treasury has accurate information to get that money to you.
In the meantime, stay safe, stay healthy, and continue to read our blog for the most excellent tax advice.