With the 2020 tax deadline of April 15th drawing near, now is a good time to organize essential forms, think about your filing choices, and set yourself up to avoid a last-minute rush to ensure your returns are submitted on time. Here are 6 things to keep in mind to help ensure a smooth and simpler filing:
1. Collect All Documents With Tax Implications
Anything that shows earned income, taxes withheld, interest paid, and any type of investment implication are of vital importance in preparing an accurate tax filing. Leaving any of them out could either leave you paying more than you should in taxes, or could inadvertently reduce the amount refunded back to you. Some of the most common examples include:
- W-2s: reports income earned as an employee of a company
- Form 1099: income earned as an independent contractor
- Form 1099-B/1099-INT/1099-DIV: investment-related
- Form 1098: mortgage interest paid
- Form 1098-E: student loan interest paid
2. Do Not Forget Traditional IRA and Health Savings Account (HSA) Contributions
These can easily be overlooked, especially if you make your contributions on an automatic basis, but doing so can leave you overstating your taxable income. Each of these contribution types, under the proper rules and guidelines, reduce your taxable income. While there are other tax advantages to each of these accounts, not reporting your contributions will omit what many tax professionals argue is the largest economic benefit they each provide.
The contribution limits for a traditional IRA are $6,000 for those under 50 years old, $7,000 for those 50 and older. The IRS requires that these contributions come from earned income.
For HSAs, the contribution limits for individuals are $3,550, and $7,100 for families.
It is essential to note that while HSAs do not have income limitations in allowing the deduction of the contribution, traditional IRAs do. A tax professional can provide guidance on this eligibility.
3. Already Filed Your Taxes and Realize a Mistake? Relax
A little known fact about the IRS is that filing your taxes on-time automatically grants individuals a filing extension, should they need to make an amendment or correction to what was already submitted. It is highly recommended that once a mistake is caught, work with a tax professional to ensure the proper steps are taken to correct it.
4. Used to Itemizing Your Deductions? Don’t Forget the New Standard Deduction
After the recent Tax Cuts and Jobs Act eliminated personal exemptions and numerous deductions in lieu of a higher standard deduction, many who itemize their deductions out of habit may not be saving as much as they could. With these changes, see what the new rules amount to in comparison to the revised standard deduction just to be sure you’re making the optimal choice.
5. Claiming any Dependents? Make Sure to Include Their Social Security #s
When claiming dependents in your tax filings, the IRS will want to see their social security numbers referencing each one. Not doing so may prevent you from claiming these tax credits.
6. When in Doubt, Talk to a Tax Professional
There is something to be said about self-efficiency and saving money, but when it comes to uncertainty in your tax filings, the costs of making a mistake quite often exceed what you would have spent to work with a tax advisor. Those with simple and straightforward filings will likely get by just fine without one, but the more complex one’s income stream and personal situation become, the greater the likelihood of making a mistake.
Paying to work with a tax professional is really an investment in yourself, and there are several that can be found for rates that won’t break the bank.