Getting Ready for Tax Season
Well, 2020 is officially behind us. A new year brings the hope that things will be better for all, but it also brings the beginning of tax season. The IRS is encouraging all taxpayers to start taking steps now so that returns are filed timely and accurately. What should you be doing?
Gather and organize all tax records. This makes preparing the return easier and helps to prevent overlooking deductions and credits to which you may be entitled. The records should include:
- A copy of your previous year’s return to remind you of transactions which may need to be reported, or have an effect, on your 2020 return.
- All income reporting forms such as W-2s, 1099s, and virtual currency reports. Since January 31 falls on a Sunday, the date by which you must receive these forms is February 1, 2021. Make sure entities which will be sending you these forms have your correct mailing and e-mail address to ensure you receive these forms. Also, for those who have performed services as an independent contractor you will receive a 1099-NEC and not a 1099-MISC for those fees. See https://magdaabdogomezlaw.com/important-tax-changes-2020/
- Unemployment compensation is taxable and you should receive a 1099-G.
- Many taxpayers who received a tax refund in 2020 for their 2019 taxes, were paid interest by the US on those refunds. This interest was paid separately from the refund itself and is taxable income. The IRS will issue a Form 1099-INT for interest payments exceeding $10. This income must be reported on the tax return.
- Records of self-employment or rental income.
- Records regarding purchase, sale and improvement of property.
- If you are eligible for the Recovery Rebate Credit (stimulus) and received an Economic Impact Payment in 2020, you will need Notice 1444 to calculate if you are entitled to any additional credit. You would have received this notice at the time you received the stimulus payment.
- If you qualify for the premium tax credit for health insurance paid, you will need Form 1095-A which you will receive from the insurance marketplace.
- Receipts and/or documentation substantiating deductible expenses and credits. The CARES Act allowed a deduction of up to $300 of charitable contributions even if you do not itemize. This is the maximum amount which may be deducted, even if you are married filing jointly.
Taxpayers who have received income which was not subject to withholding such as self-employment and pension income need to determine whether they have made sufficient withholding or estimated tax payments throughout out 2020 to avoid penalties. The last quarterly payment for 2020 is due on January 15, 2021. See https://magdaabdogomezlaw.com/need-know-tax-withholding-new-tax-act/
Notify the IRS of any address changes. You can use IRS Form 8822 to report this change.
Notify the Social Security Administration of a legal name change to avoid delays in the processing of the tax return.
Taxpayers who use Individual Tax Identification Numbers need to ensure that the number has not expired. If the number has expired an IRS Form W-7 needs to be submitted to renew the ITIN. Failure to renew the ITIN before filing the return could result in a delay in processing and the issuance of a refund. The failure can also result in ineligibility for tax credits.