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Four Tips to Prepare for Tax Season

1/29/2021

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Every year, we put away the last of the holiday decorations, try to make good on our new resolutions, and realize it’s time to prepare for tax season. After a year like 2020, getting organized in advance is especially important. Your tax return may look different this year due to COVID-related changes in your personal situation or finances. So get comfortable and keep reading for the 4 best steps you can take now to prepare for a successful tax season.

Your 2020 taxes may be unique compared to years past when accounting for the impact of the pandemic.


1. Get organized!

Whether you’re working with a professional tax preparer or doing your taxes yourself, the first step is to get organized. Collect supporting documents such as W-2(s) and other forms. Then work through the following categories to help you ensure nothing is forgotten. Get a head start on this to guarantee you’re on track to file your taxes on time.

Personal Information

What, if anything, has changed in your personal life, such as your marital status, dependents, home address, or bank account? 

COVID-19

Everyone was impacted in some way by the Coronavirus pandemic in 2020. Now it’s time to assess any tax implications such as:

  • Economic Impact Payment: Although the payment itself does not count as income subject to taxes, EIP recipients should keep Notice 1444, mailed after the payment goes out. This is especially pertinent if you think your payment amount was wrong. You can claim additional credits, such as for a new baby, if eligible.
  • Paycheck Protection Program: If you own a small business, did you receive a PPP loan? If yes, have you applied for PPP loan forgiveness yet?
  • Telecommuting employees: Did you have to “shelter in place” due to local COVID-19 protocols while working in a state that isn’t your home state?
  • Families First Coronavirus Response Act: Did you receive emergency leave sick pay and/or emergency family leave wages as required under this new law?
  • Unemployment benefits: Did you receive any special benefits or compensation for unemployment under the Coronavirus Relief Act?
  • The self-employed: Were you unable to perform your self-employed activities due to Coronavirus-related care you provided to others or needed for yourself?

In addition to gathering your own paperwork, don’t forget to begin gathering the necessary documents

Income

List all your sources of income and collect the necessary supporting documents. This includes employment and self-employment income, businesses, rental properties, stock sales, federal and state benefits, and more.

Retirement

Are you currently retired or still working and contributing to a qualified retirement plan? Collect the necessary tax forms showing benefits received or contributions made.

Education

Did you contribute to or withdrawal from an education savings or 529 Plan account? Did anyone in your family attend a post-secondary school and incur related expenses? What about student loan interest? Gather the related documents and tax forms.

Health Care

Finally, collect tax forms (such as Form 1095-A, B, or C) and documentation related to your health care coverage, Health Savings Account, etc.

2. To itemize or not to itemize, that is the question.

With the passage of The Tax Cuts and Jobs Act of 2017, the standard deduction nearly doubled. For 2020, it’s $12,400 for single filers and married filing separately, $24,800 for married filing jointly, and $18,650 for head of household. So, unless your itemized deductions would exceed the standard one, you don’t need to worry about collecting documentation for deductions, such as charitable giving.

Make it a habit to review your credit score each tax season. This information may help inform your financial decisions


3. Are you flying solo or using a preparer to file your taxes?

Once you’ve organized your tax forms and other relevant documents, you’re ready to begin the filing process. Depending on how complicated your taxes are, you may be able to file yourself using tax filing software or the paper form, or you may want to use an experienced tax preparer. If you’re going to ask for help, make an appointment to discuss your situation (if needed) and find out what their deadlines are for submitting your paperwork in order to guarantee on-time filing.

4. Watch out for tax-related scams throughout the year.

While tax season may be limited to a few months of the years, tax scams are always in season. Review the IRS’s “Taxpayer Guide to Identity Theft” and bookmark their “Tax Scams/Consumer Alerts” to stay aware of the latest scams targeting taxpayers. 

We can help you make the most of your finances today!

At Town and Country Bank and Peoples Prosperity Bank, our mission is to empower the financial well-being of our communities, one person at a time. Our bankers are knowledgeable and offer a comprehensive suite of innovative products and modernized services to assist you with achieving your financial goals. For more information on how we can better serve you with your financial outlook, schedule a personal financial review or contact us today!

Do you need any account or loan information to prepare your taxes?

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