There’s no doubt about it that the year of 2020 has been one for the books. More reason to make sure that you are ready to file your 2020 tax return, right? Here are a few things to look at to prepare.
- Double check your withholding and make changes as soon as possible
If you received a smaller refund this year than expected, paid a balance due on an unexpected tax bill in the prior year, or have experienced any major personal or financial changes that could impact your tax liability, make sure you take a second look at your withholding so there are no surprises when filing your 2020 tax return. Now that December is here and there are only a few pay dates left, there is still time to change your withholding or make additional tax payments. You can use the Tax Withholding Estimator found on the IRS website to make sure you have the right amount of tax withheld from your paycheck.
- Hang on to your tax documents for at least three years for adequate document retention
A good rule of thumb is to have copies of your tax returns and supporting documentation for at least three years. When gathering your documents for the 2021 tax filing year, consider the following forms.
- 2019 tax return (If switching CPAs)
- Form W-2 from employers
- Form 1099 from financial institutions and other payers
- Form 1095-A
- Form 1099-NEC (Nonemployee compensation)
- Notice 1444 (Stimulus check)
Also consider any earnings from interest refunds, unemployment compensation and income from virtual currencies as they are taxable.
- Verify mailing and email addresses are up to date and correct.
Ensuring that your mailing information and email addresses are current with financial institutions, your employer and other payers is beneficial as forms are typically arriving to the mailbox or are available online in January. Communicating any changes in this information to your CPA is also helpful.
- Additional things to look at when getting ready for the 2021 tax filing season
There is a recovery rebate credit for taxpayers if they meet the eligibility requirements in 2020 and one of the following applies:
- The taxpayer did not receive and E.I.P. in 2020.
- The taxpayer is single, and their payments was less than $1,200.
- The taxpayer is married, filed jointly in 2018 and 2019 and their payments was less than $2,400.
- They didn’t receive $500 for each qualifying child.
To learn more about eligibility, visit the IRS website.
As mentioned earlier, interest refunds are taxable and the IRS sent interest payments to taxpayers that filed their 2019 tax returns with refunds, on time. If you are in that position, then you could expect to receive Form 1099-INT from the IRS if you received interest of $10 or more.
Are you ready to file your taxes in 2021? For additional information on getting a jump on next year’s taxes, visit the IRS website. If you have any further questions, feel free to contact a Henry+Horne tax professional.
Cierra Tate, Tax Associate