It’s Tax Time: Some Important Reminders
With the beginning of a new year, this means – let’s say this together – it’s tax time! For those who took advantage of the extended filing period in 2020, it may feel like very little time has passed since you last filed, but the federal government began accepting and processing returns on Feb. 12, and the normal deadline of April 15, is now May 17. So, as you gather all those receipts and tax documents to plug into your chosen tax software or submit to your tax preparer, we want to provide you with some important things to remember.
Your Tax Situation May Have Changed
The past year has been nowhere near close to ‘‘business as usual” and sweeping changes throughout the economy could have an impact on the way you file your taxes. From potentially less income, to factoring in COVID-19 stimulus payments and unemployment compensation.
If your income was lower in 2020 than in previous years, you might be eligible for credits you typically don’t consider or may even be aware of. You may also find that you are completing different forms that you’re not use to or that you are eligible for preparation discounts. Make sure if utilizing a tax preparer or a do-it yourself software to explore all available options to get the most back that you qualify for. If this is your first time filing with unemployment compensation, you must include this when filing since it’s technically income. To include this in your filing process you should have received a statement of unemployment compensation and taxes paid, just like you would receive a W-2 from an employer.
You Will Need to Account for Your COVID-19 Stimulus Payments
If you received any COVID-19 stimulus payments, keep track of how much you received and when. If you did not receive the entire amount you are eligible for, you might be able to claim them as tax credits, which can lower your tax payments or increase your refund. Even if you’re at an income level where you aren’t typically required to file tax returns, you may want to complete and submit a return so you can claim any unpaid COVID-19 stimulus funds. Remember, it is free to file electronically, and many tax programs allow you to complete simple tax forms free of charge. Some states also offer in-person tax preparation help to people who meet certain income requirements. Therefore, check with your local or state government to see if those services are available to you.
Florida – https://www.unitedwayncfl.org/vita
California – https://www.ftb.ca.gov/help/free-tax-help/index.html
The amount of your tax credits may also affect your state taxes (if applicable), depending on whether your state allows you to write off your federal tax liability. Follow the instructions on your state tax forms to account for those payments.
Keep Your Information Updated
Make sure you have your correct account number, so you don’t have any delays in getting your tax refund deposited directly into your account. Contact us at (800) 948-6677 or schedule a virtual appointment if you need help finding your correct account information. Also, since you might need it, our routing number is 322274242.
Make sure to have all documents ready to go.
As always, you should prepare to document any tax deductions you claim, from charitable contributions and mortgage interest, to health-care premiums and business expenses.
Even if you don’t end up using all the receipts and documents, make sure you have them handy before you or your tax preparer completes your tax returns. A little time spent gathering these resources before you begin filing can make the process less stressful and quicker.
Once you’ve finished with your taxes, speak to your tax professional to see how long you’ll need to keep your documentation and which pieces you can securely destroy. For those that take the route of do-it yourself software it’s recommended to at least keep your records for 3 years from the date you filed.
Wait! There still time to make those retirement contributions!
Yes, you read that right, there is still time to make 2020 retirement contributions in the year of 2021. If you haven’t maxed out your 2020 contributions to a qualifying retirement plan, you have until April 15, 2021, to contribute. Most deductions need to be made by the end of the tax year, contributions to a qualifying retirement account can lower your taxable income and help you lower your tax bill or get a bigger refund. And who doesn’t want a bigger refund? Need to know the max contribution? For an Individual Retirement Account (IRA) the yearly max contribution is $6,000. For taxpayers over the age of 50, that amount increases to $7,000. Any amounts you contribute to a workplace-sponsored retirement account may affect these limitations. Therefore, make sure you have all contribution records.
Income limits may apply to the amount you can contribute and the amount you can deduct from your taxable income. Therefore, please check with your tax preparer or accounting professionals to ensure that you’re eligible for these benefits. As a helpful guide check out the below NerdWallet article where it breaks down filling status and if you can receive full, partial or no deduction. https://www.nerdwallet.com/article/investing/ira-contribution-limits
Tax time no longer needs to be a daunting yearly task. A little preparation before you start to file can make the process go much more smoothly.
With contributions by Mia W. from Partners