Declare your taxes can be a problem, but it doesn’t have to be if you’re preparing for the process. Tax day is just around the corner, now is the time to start.
The four-step checklist below will make it as easy as possible to submit your returns to the IRS (and your state). So put these items on your to-do list so that you’re ready to go when the IRS begins accepting returns for the 2020 tax year.
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1. Gather all your papers
You’ll need a lot of financial information to file your tax returns, so it’s best to prepare it before you start. Some of the documents to assemble include:
- Forms showing your income such as W2, 1099 and K-1 for investment income
- Forms declaring benefits that may be taxable like your SSA-1099 form declaring social security income
- Registers of tax deductible contributions to accounts such as IRAs and health savings accounts (HSAs)
- Receipts for deductible expenses such as medical expenses exceeding the required percentage of your income
- Expense forms or receipts that could entitle you to tax credits like Form 1098-T which shows tuition paid, receipts for class supplies if you are a teacher, or receipts for energy efficient products added to your home
- Forms indicating the payment of the deductible interest including mortgage interest and student loans paid
- A statement of your charitable donations if you detail or plan to claim up to a $ 300 deduction available for non-itemizers in 2020
- Form 1095-A if you’ve purchased insurance on an Obamacare trade-in to ensure you’re receiving the correct amount of tax credits to help pay health insurance premiums
There may also be other documents you need, such as information about state and local taxes paid if you itemize and claim the SEL deduction. Any financial forms or documents that affect your taxable income should be assembled and ready for use.
2. Decide on the best way to deposit
Are you going to hire an accountant to submit your forms for you, use tax filing software, or go it alone and submit paper forms? For most people, using online software is the most cost effective way to complete taxes. You’ll get help through a complicated process, but you won’t have to pay a premium for expert advice.
If you’ve been through some big changes in your life, or if your situation is complicated – perhaps because you have several unusual sources of income or are running a business – it may be worth it to bite the bullet and work with it. a chartered accountant (CPA).
3. Add up your possible deductions
Many of your tax return choices are straightforward. For example, IRS rules dictate whether you are eligible to file as a single, head of household, or married, although married couples can decide whether to file separately or jointly.
But you can choose if you want to claim the standard deduction (available to everyone) or if you prefer to itemize. Detailing makes sense only if the value of your specific deductions exceeds the amount of the standard deduction.
For your 2020 taxes (which you file in 2021), the standard deduction is $ 12,400 for single people, $ 18,650 for heads of household or $ 24,800 for married spouses. For many people, this is more than the amount they could claim if they itemized. You will need to decide if this is the case for you by adding up deductible expenses including mortgage interest, state and local taxes paid, medical expenses and charitable contributions.
4. Complete your income tax returns
Once you have your forms, have decided to detail them and have chosen your deposit method, it is time to complete your tax returns. This includes your Form 1040 for the IRS, as well as state tax forms if they are required where you live. Your accountant will take care of the paperwork for you if you have hired one or you will do it yourself using online software or by filling out hard copies of your returns.
Make sure you submit all of your forms to the IRS before the tax deadline, which is April 15, 2021 for the 2020 tax year. The state forms will be sent separately and, if you used a tax filing program, you may have to pay additional fees to file them.
You should too receive your forms on time, although you will have a tax bill, you will not be able to pay in full, since the federal penalty for failure to file exceeds the penalty imposed for late payments. If you have followed these steps completing the process will hopefully be easy.
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