This year has been quite busy and there’s been a lot of changes. One thing that remains constant is the tax season. Tax season 20201 is coming up and we need to stay ahead of our tax filing, to avoid penalties. The IRS has outlined steps that can help to ensure that you don’t miss out on tax benefits or make mistakes. Here are a few simple steps.
Tax Filing Steps
An important first step to getting taxes ready is to gather all tax records. Having records organized makes preparing a tax return easier. It may also help discover potentially overlooked deductions or credits.
- Most income is taxable. Taxpayers would typically need to gather income documents such as Forms W-2 from employers, Forms 1099 from banks and other payers, and records of virtual currencies or other income. This also includes unemployment income, refund interest, and income from the gig economy.
- Beginning in 2020, individuals may receive Form 1099-NEC (Nonemployee Compensation) rather than Form 1099-MISC (Miscellaneous Income). This is so if they performed certain services for and received payments from a business. Please ensure that you or your hired assistant refer to the instructions for Form 1099-MISC and Form 1099-NEC. This ensures that you’re not only using the appropriate form and are aware of this change, but also completing them properly.
- Taxpayers may also need Notice 1444 (Economic Impact Payment), which shows how much of a payment they received in 2020. This amount is needed to calculate any Recovery Rebate Credit they may be eligible for when they file their federal income tax return in 2021. People who didn’t receive an Economic Impact Payment in 2020 may qualify for the Recovery Rebate Credit when they file their 2020 taxes in 2021.
- To see information from the most recently filed tax return, recent payments and more taxpayers can sign up to view account information online.
- Taxpayers should notify the IRS of address changes. Additionally, they should notify the Social Security Administration of a legal name change to avoid delays in tax return processing.
Getting Ready for 2021
Taxpayers with an Individual Tax Identification Number (ITIN) should ensure it hasn’t expired before filing a tax return in 2021. For example, ITINs not used on a federal tax return at least once in the last three years will expire on Dec. 31, 2020. If the ITIN has expired, IRS recommends submitting Form W-7 (Application for IRS Individual Taxpayer Identification Number) to renew an ITIN. Taxpayers who fail to renew ITINs before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits.
Taxpayers can now use the Tax Withholding Estimator. This tool, offered by the IRS is designed to help determine the right amount of tax to have withheld from paychecks. Taxpayers can use the Tax Withholding Estimator to help determine if adjustments to withholding are necessary. Withholding changes can be made by submitting a new Form W-4 to the taxpayer’s employer.
Taxpayers receiving substantial amounts of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income, should make quarterly estimated tax payments. The last payment for 2020 is due on Jan. 15, 2021. Payment options can be found at IRS.gov/payments.
For more information, see Publication 5348, Get Ready to File PDF, and Publication 5349, Year-Round Tax Planning is for Everyone PDF.
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