You know how the saying goes: the only sure things in life are death and taxes. And even though 2020 was an unprecedented year in many ways, we still have to file taxes for it. Since you may be still reeling from the pummeling 2020 gave us, here are some tips on how to prepare for when taxes are due. And no, it’s never too early to be thinking about doing your taxes!
Your First Stop: IRS.gov
Use the IRS website for online tools, filing resources, other services to kick-start your tax preparation. You can find information in six languages and accessible forms and publications for people with disabilities. To view your own personal tax information, set up or log in to your account at IRS.gov/account. The IRS has an interactive tool you can use to search for answers to specific issues that affect you.
Stay Home and E-file
Take advantage of electronic filing to stay safe and file your taxes fast and efficiently. Tax preparation software guides you through the process and does the math for you. You can choose a free e-file offer from those listed on the website. Remember: Depending on your income, and if you’re a senior citizen or a military member, you should not pay anything for these services. Only file with a company listed on the IRS website and beware of scams.
Taxpayers age 65 or older may use the new Form 1040-SR, U.S. Tax Return for Seniors. All others will file Form 1040.
2020 Economic Impact Payments
If you received an EIP last year, you do not need to claim it as income. You may be able to claim the Recovery Rebate Credit on your Tax Year 2020 federal income tax return if you met the eligibility criteria in 2020:
- You didn’t receive an Economic Impact Payment, or
- Your Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018) plus $500 for each qualifying child you had in 2020
Unemployment Compensation
If you received unemployment assistance in 2020, it is taxable and you must include it in your income tax return. Check your state’s unemployment compensation website for more information.
Know Your Eligibility for Credits and Deductions
Don’t miss out on ways to put money in your pocket. Familiarize yourself with the credits and deductions you can take on your tax return. If you’re a parent, you may qualify for the Child Tax Credit or the Dependent Care Credit. If you purchased a home, lost your job, or are going to college, you may be eligible for certain benefits as well. Big life events impact your taxes. For more information, visit IRS.gov/lifeevents.
Be Ready for Your Refund
Combining direct deposit with electronic filing is the fastest way for you to get your refund. With direct deposit, a refund goes directly into your bank account. There’s no reason to worry about a lost, stolen or undeliverable refund check. Most refunds take less than 21 days. See IRS.gov/refunds for more information.
Adjust Your Withholding
Getting a refund at the end of the year isn’t always the best route for your money. You may want to adjust your tax withholdings so you have more money in your pocket during the year based on your lifestyle and financial goals. Use the IRS Tax Withholding Estimator to help decide if you need to adjust your withholding or make estimated or additional tax payments.
Thinking about your taxes year-round will help your filing go smoothly for the next year. Follow some more advice about preparing your taxes and stay connected with the IRS by downloading the IRS2Go mobile app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.
CONTACT one of our local financial advisors for a complete financial review.
None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.