Tax Tips for Filing Your 2020 Taxes
If you don’t like accounting, then it’s very likely that you don’t have a good time when it comes to filing taxes. It’s possible that some of you might even opt to hire someone to help with the task. However, everyone can play the role of a bookkeeper if they know a few simple tricks.
The IRS recently announced that given the current climate, taxpayers should expect minimal face-to-face operations. They’re also going to be dealing with a heavy call volume and could even experience processing delays. Additionally, there a few pandemic-related changes in the tax law as well, further complicating matters. However, save yourself the money and follow these tax tips to file your taxes for 2020 without stress!
Organize All Documents
Before you can actually start working on filing your returns, the best approach is to organize all the necessary tax documents and financial records. It can be annoying to have to stop the process and look for specific forms. The best way to proceed is to arrange all the documents beforehand and then begin doing your taxes with them all available.
Start off with your prior year’s tax returns to help get you a decent starting point. It’ll make determining the previous year’s income, deductions, and credits reported. One of the most convenient solutions the IRS offers is its online portal. If you can’t find a copy of your previous year’s tax returns, the IRS online portal allows you to request one quickly.
If you were working with a CPA or bookkeeper before, they probably gave you a copy of the tax returns as well. It’s essential to find these previous returns to make preparing your tax return for 2020 much more straightforward.
Everyone has different tax documents that they need to submit to those unsure should check with the IRS website. The website contains all the necessary information on what type of document you need to submit depending on your financial situation.
Create IRS Online Tax Account
The IRS is currently accepting tax payments for 2020. In a recent statement, they announced that they’d be maintaining minimal face-to-face contact during this year’s payment period. They also informed taxpayers to expect a heavy call volume and potential delays in processing.
That’s why it’s super important to set up your online tax account with the IRS. The portal will allow you to get your documents without having to visit, email the agency, or spend time on the phone. It also allows users to check their payment balances and set up payment arrangements. Another section of the portal will showcase previous tax returns and any reported tax forms.
In previous years, a lot of people didn’t think it was essential to create an online tax payment account. However, when everything shut down during the pandemic, it was the only way people could get access to their documents to file taxes.
While the online tax account offers several features that help ensure that filing taxes becomes more manageable, it doesn’t give you the option of electronically filing your tax returns.
File Electronically Via Direct Deposit
Anyone that has done their taxes before will know that filing via paper takes a long time, and any physical checks will take even longer to reach their destinations this year. Electronic filing has been around for a long time but has only started gaining traction in recent years. Now close to 90% of taxpayers make use of e-filing to submit their taxes.
There are several different benefits to filing electronically. One of the most significant benefits is getting immediate confirmation from the IRS when they receive the tax return. If there are any errors, they’ll give you a rejection notice. It’ll contain information on the rejection, and you can use that to fix any potential issues.
It’s also safer to file your returns electronically. Anything could happen to your tax returns in the mail, and it’s not the most reliable mode for filing for such sensitive information. However, when you file electronically via direct deposit, all the information or funds are transferred securely.
When you send your tax returns via mail, the IRS also has to spend a significant amount of time transcribing the tax returns. There’s also a significantly lower chance of human error due to the lack of transcribing.
There are plenty of tax preparation programs that can help electronically file your taxes. Individuals who are good with taxes can fill in the forms directly using the free IRS forms. However, this option is best for individuals that have a lot of experience with filing taxes. If you’re doing it for the first time, a free-file affiliate is a great option as well.
One of the significant causes of change during this season's tax returns is the use of stimulus payments and unemployment income. Millions of Americans got Economic Impact Payments that are also known as stimulus payments. In the case that you didn’t receive the stimulus payments, you can still claim them on the 2020 tax returns through the recovery rebate credit.
The recovery rebate credit works in two ways. It will either increase your anticipated tax refund or effectively reduce your tax payment. If you’re unsure about the claim amount, check Notice 1444. It contains the first stimulus payment, and Notice 1444-B includes the second round of stimulus payments.
Those who got the stimulus payments were sent these notices by the IRS within 15 days of the payment. This information is crucial to receive the recovery rebate credit and will be a part of your tax returns. If you received the payment, there would be no need to complete the recovery rebate credit section.
More Americans than ever before received unemployment income in 2020. If you were a recipient, be sure to check for Form 1099-G. You’ll need to fill out the form because unemployment income is considered taxable income.
Pay by April 15th
The due date to file your tax returns and make any payments is April 15th. It’s generally a good idea to make as many payments as possible before the due date. While they extended the deadline last year, the IRS has given no indication of doing so this year. That means you should be ready to pay your taxes by April 15th, or you’re going to have to pay the penalty.
In the case you don’t have the money to pay the full amount, you should still try to pay as much money as you possibly can before the 15th. The IRS doesn’t provide any concrete information on the penalty, but it’s generally charged at 0.5% of the unpaid amount. By paying off as much as you can, you’re going to effectively reduce the penalty you’re going to face.
The IRS also gives you the option to apply for an extension to file your tax returns by October 15th. However, that doesn’t apply to payments.
Should You Hire a CPA?
Accounting isn't a subject for everyone, and some people might struggle with all their numbers. If you are one of those people, then filing your taxes must seem like a nightmare to do yourself. However, with a bit of practice and guidance, anyone can easily learn how to file their tax returns using easy-to-understand online tools.
That doesn’t mean there aren’t any situations where a CPA would be more suitable for the job. If you’re a small business owner or a big investor, the best way to go might be to seek the help of a CPA. It might seem like an awkward relationship at first, but it will definitely help you file your taxes. The CPA can tell you how to get tax deductions, how to read tax forms, and how to create a better tax strategy for the future. If you do decide you need to hire a CPA, please reach out to the team at Hall Accounting Company at email@example.com.
Be Strategic to Avoid Fees
Certain income levels and tax filing situations allow taxpayers to qualify for the IRS Free File Program. Those who have an AGI lower than $72,000 can be eligible for the IRS program. This is essentially a partnership between the IRS and a few different options of online tax software.
These programs have been around for a long time, but they haven’t received a lot of attention until recently. People simply aren’t aware that they qualify for the service. Another program is the IRS volunteer income tax assistance. It provides free tax-preparation assistance to taxpayers who make less than $57,000 or have a disability.
Filing your taxes has always seemed much more complicated in theory than it is in reality. Even though there are some changes because of the Covid-19 pandemic, following these tips can help you understand everything you need to know to file your taxes in 2020!
FUTURE IMPORTANT DEADLINES
Deadline for businesses to mail Forms 1099 and 1096 to the IRS
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065) or to request an automatic six-month extension of time to file (Form 7004)
Deadline for businesses to e-file Forms 1099 and 1096 to the IRS, except Form 1099-NEC
Deadline to file individual tax returns (Form 1040) for the tax year 2020 or to request an automatic extension (Form 4868) for an extra six months to file your return, and for payment of any tax due, and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for corporations that use the calendar year as their tax year
Deadline for household employers who paid $2,200 or more in wages in 2020 to file Schedule H for Form 1040
Deadline for first-quarter estimated tax payments for the 2021 tax year
Deadline for second-quarter estimated tax payments for the 2021 tax year
Deadline for third-quarter estimated tax payments for the 2021 tax year
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020 for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065)
Final extended deadline to file individual tax returns for the year 2020 (Form 1040), and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020 for corporations that use the calendar year as their tax year