Personal Tax Preparation: Getting an Early Start on Tax Filing Season
Every year, the tax season begins in January and ends in April. This tax year was different due to the pandemic’s staggering effects. The I.R.S. pushed the filing deadline to May 17 from April 15. For various reasons, some tax filers received tax breaks.
So, when should you start preparing for future tax seasons? If possible, we advise you begin filing your tax return early and not wait to do it at the last minute. For this reason, we’ve gathered valuable personal tax preparation tips to help you during the next tax season.
Set Up an Online I.R.S. Account
Having an I.R.S. account offers access to all your tax documentation. On your account, you’ll find any existing payment balances and prior-year filings. This account was helpful this year when the I.R.S. suspended their toll-free number and walk-ins, as they had closed their offices in response to the pandemic.
Gather Your Tax Documentation
Having all your tax paperwork at hand can help limit mistakes and make the filing process more relaxed. We recommend using the previous year’s income tax returns to confirm what you reported.
You can visit the I.R.S. portal to retrieve this form. Alternatively, if you worked with a C.P.A. firm, you’ll likely have a copy with you. While everyone’s case differs, several documents are applicable across the board. These personal tax preparation forms include:
- W2 forms for employees
- 1099-NEC and 1099-K for freelancers and sole proprietors
- 1099-G for those that are unemployed
- Real estate taxes and Mortgage interest statements for homeowners
- Social Security Benefit Statement and the 1099-R for retirees
Remember also to organize your personal information, some of which include your dependent’s Social Security number and property addresses.
Stay Up to Date on Your Tax Return Changes
This year’s tax season included notable changes related to unemployment income and stimulus checks. For instance, those that hadn’t received their stimulus checks were to claim these benefits via the recovery rebate credit. This credit would cater to the first and second remittance of the stimulus checks.
In addition, the recovery rebate credit would either result in additional tax refunds or reduce the amount of tax you owe. If unsure about the amount, you needed to use Notice 1444 and 1444-B for clarity on both stimulus check payments.
Besides that, the I.R.S. sent email notices within two weeks of receiving the stimulus checks, but only those who didn’t receive the entire amount included a recovery rebate credit worksheet in their tax returns.
The other tax change surrounded the unemployment income. Those who filed for unemployment benefits included form 1099-G because the I.R.S. classified this income as taxable income.
Hence the need to report this payment. Remember, the same principle would apply for any state taxes withheld during the year.
File Your Tax Returns on Time
We can’t stress enough the importance of filing your taxes before the deadline. As mentioned earlier, the I.R.S. extended the deadline for the 2020 tax season. One thing to note is this extension applied only to the income tax payments and return filing. The deadline for estimated taxes remained the same (April 15).
However, if you can’t pay all taxes listed in your federal tax return, it would be a good idea to pay whatever you’ve raised before the deadline. Remember, the penalty for unpaid taxes is at 0.5%. However, by paying a substantial sum, you decrease the penalty amount.
Take Advantage of the I.R.S. Free File Program
The I.R.S. free file program is a personal tax preparation provision for lower-income Americans. The limit for those eligible changes every financial year. For the just-completed tax season, the limit was an adjusted gross income of 72,000 USD or less. If you qualify, you get to enjoy free tax preparation services from one of the IRS-approved tax software providers.
Decide Whether to Itemize Your Standard Deductions
The 2017 Tax Cuts and Jobs Act resulted in increased deduction limits for taxpayers. As such, you may either choose to claim your standard deduction or itemize it. Your decision should be based on the option that minimizes your tax liability considerably. Remember, not every tax deduction is itemizable. For example, taxes above $10000 and tax preparation costs.
Consider Working with a Tax Preparer
While you might be tempted to prepare taxes yourself, this could end up backfiring once your tax situation becomes complex. A business advisor will:
- Organize all relevant data from your financial account
- Maximize any deductible expenses and tax credits you qualify to claim
- Prepare your tax returns
- Offer tailored business advisory services like compliance and succession planning
Tip: It’s never too early to prepare for tax season
Contact FMA CPA for More Information about Tax Planning and Business Advisory Services
F.M.A. CPA is a CPA firm in Clearwater. Our dedicated team of business tax preparation professionals ready to meet your business and individual tax needs. With our help, you can adopt more effective tax strategies to increase your savings and reach your long-term financial goals. Have any questions? Contact our team to learn how to make your future tax seasons stress-free.