COLLECT YOUR DOCUMENTS
It’s no surprise that documents are a big part of filing taxes. All through the early winter you’ve been getting statements and forms. If they’re not already in a folder, it’s time to get organized! You should compile the following documents:
- Last year’s tax return
- W-2 and 1099 forms
- Other income documents
- Form 1095-A and other health insurance forms
Almost all of these documents should be given to you by January 31. Some 1099s can be sent until February 15, and some forms for people who own various business partnerships may even get forms as late as March 15, but for most people January 31 is the deadline for receiving these documents.
Remember, most of your income is taxable. If during 2020 you collected unemployment (this will apply to more people than normal due to COVID-19), got tax refund interest, earned money from your “side hustle” or the gig economy, or made money on virtual currency transactions, you’ll want to be sure you are reporting this income to the IRS.
Other paperwork can save you money, so be sure to look for that. For example, Form 1098 tracks your mortgage interest — which you may be able to deduct, depending on your circumstances.
DOUBLE-CHECK YOUR WITHHOLDINGS
If your workplace takes taxes from your check every month, you want to make sure they’re taking out the right amount. With the proper withholding, you can avoid a big tax bill during tax season. And while people love tax refunds, they’re not always a good thing. When the IRS withholds too much, you lose out on much-needed cash flow during the year—and you’re essentially giving the government an interest-free loan. However, you want to be sure the right amount is coming out. A large refund isn’t always a good thing.
The IRS has a handy tool to see if you are having the right amount withheld. If not, you can ask your employer to update your withholdings right away, and make any additional payments by the end of the year.
RELATED: Should I Break Even or Make Bank on My Tax Returns?
IDENTIFY ALL OF YOUR DEDUCTIONS AND CREDITS
For 2020, the standard deduction for single filers is $12,400, and $24,800 for joint filers. If you aren’t sure which to choose, do the math! Taking the standard deduction simplifies things, but expenses like childcare, mortgage interest, medical costs not covered by insurance, property taxes, investment-related expenses and more can be deducted to a certain degree.
If you have business income and expenses to report, some of those can be deducted as well. Either way, the better organized you are, the simpler it will be to file yourself, or for your tax preparer, which may translate into lower fees for their work.
Another factor to consider while filing your 2020 taxes is the “rebate credit.” People who did not qualify for Economic Impact Payments or didn’t get the whole amount might be eligible for the Recovery Rebate Credit based on their tax situation. Reach out to our office if you have questions about this tax credit.
RELATED: Home Office Expenses and Other Tax Deductions You Won’t Want to Miss
CONSIDER SAVING FOR RETIREMENT
Your taxable income level can be reduced for the year if you choose to take some of your income and make an allowable retirement plan contribution. You can contribute to an IRA up until filing day, which can reduce your total tax liability.
DECIDE WHETHER YOU WANT A TAX PROFESSIONAL’S HELP
Depending if your tax situation is simple or complex, there are good ways to either prepare your own taxes, or you may choose to hire a professional. If you plan to file yourself, have your bank routing number and account number handy so you can e-file and get your return sooner.
If you don’t want to take on the task of tax preparation on your own, S.H. Block Tax Services offers assistance for even the most complex tax situations. If you choose to have a tax professional file for you, make an appointment and bring all of your documents with you. It will speed up your filing and save you time.
If you need more time to collect your documents, we may be able to file an extension on your behalf. However, the sooner you start your tax preparation, the better.
CONTACT S.H. BLOCK TAX SERVICES TODAY
Taxes can be complicated, but they don’t have to be scary! If you need professional tax assistance, reach out to our team at S.H. Block Tax Services for an appointment. Call (410) 872-8376 or fill in the contact form on our website to schedule your consultation.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.