Yes, it’s that time again. Something called tax season, like it’s some sort of holiday.
Still, it is coming and, like every year before, we want to provide some tips to prepare for the 2020 tax season. Some of the advice will sound familiar, but it bears repeating. Some involves changes to the way the IRS and tax rules have evolved.
Since there is no point delaying, except to procrastinate about a chore nobody likes, let’s get this party started.
Tip #1 - As Always, Get Organized
If you ignored last year’s advice to get your files organized for when tax time rolled around again, now you get to hear it again.
It's important to get organized. Create either a digital or printed form of every source of income and expense so your tax professional can get your return done in a timely manner. From now on, gather them and file them away as you go, so the 2021 tax season starts off on the right foot.
The very first thing you need to know is the social security number of everyone you list on your tax return - yours, your spouse’s or domestic partner’s, and your kids’. Here are examples of records you'll want to keep:
- W-2, provided by your employer
- 1099 - MISC forms, provided from anyone you worked for as an independent contractor.
- Social security income statements
- Investment property income
- Alimony payments
- Debt cancellation
- Game winnings (sorry, you have to)
- Jury duty income
- Payments of virtual currency
- Mortgage interest
- Property taxes
- Medical expenses
- Higher education expenses
- Charitable contributions
- Educator expenses
- IRA and HSA contributions
- Child care costs
- Student loan interest
The more adulting you do, the more documentation you seem to need, right? And if you are self-employed, you also need to keep track of business expenses such as travel, supplies, equipment, and your home office.
Tip #2 Look for Changes in Tax Law
Each year, the government tries to play with the tax legislation, ostensibly to simplify things. We all know how that goes.
You'll want to find out whether any of the changes impact you, from laws such as the Tax Cuts and Jobs Act to whether deductions or credits you applied for last year are still available.
Make sure you use the correct tax forms. The IRS updates its forms every year. To ensure you have the absolute latest, check with the IRS website and make sure your tax preparer is up to speed, too.
One piece of good news is that the IRS can no longer penalize you for not having health insurance in 2019. The bad news is, if you live in certain jurisdictions like Washington, D.C., you may still get dinged by the local or state government.
Check for forms 1095-A, 1095-B, and 1095-C indicating whether you and your family had health coverage. If you don’t receive one automatically, ask your human resources department or your insurer to obtain a copy.
Tip #3 Determine Whether to Itemize
This question has become less important since the new standard deductions came into play. However, it can still be beneficial if you are eligible for certain deductions and tax breaks.
For example, if you had a lot of medical expenses last year and you met the 10% threshold, you will need to itemize to claim these expenses. If you are filing business taxes, you may have the ability to write off expenses such as business equipment. Perhaps you meet the criteria for one of the few remaining tax credits. It’s worth it to find out.
Tip #4 Go to Identity Theft Central
The IRS has a new site providing online access to information about identity theft and data security protection for taxpayers, tax professionals, and businesses. When someone steals personal identification to commit tax fraud, that makes it the feds business.
The federal government isn’t known for moving quickly, but in the case of identity theft, they have really run with the ball to make sure your data is safe and that nobody can get your refund but you. But, hey, it would be nice if one of these thieves would pay your taxes once in awhile, wouldn’t it?
Another tool the IRS has created is the online-only Identity Protection PIN Opt-In Program:
- The IP PIN is a six digit number that provides a second layer of protection for your Social Security Numbers.
- Taxpayers are eligible for this voluntary program if they filed a tax return last year from one of the states listed on the website.
- You can also download a copy of the new publication to read up on this program - Publication 5367, Identity Protection PIN Opt-In Program for Taxpayers.
If you decide to use this program, you must do it online. You cannot get an IP PIN issued over the phone.
Tip #5 Take Advantage of Free IRS Assistance with Your Taxes
The IRS has an array of options and tools to help you with filing, preparing your tax return, or researching questions about taxes. The official website is updated with changes to tax law, helpful information about every form and publication you may need, and is actually pretty easy to use.
One tool is the Interactive Tax Assistant. It takes you through a series of questions and provides answers based on your input. It cuts down on guessing where to find information. You can also use it to determine your filing status, your eligibility for certain credits or deductions, or answer other general questions.
While we know you don’t love the smell of taxes in the morning (or any other time of day), we still want to make sure you have all the tools and information you need to keep the 2020 Tax Season under control. While you get your taxes completed, take the time to put some processes in place to make it easier next year.
As always, give us a shout if you want to know more or just get a bit of help.