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Being at home during the latter part of 2020 because of the pandemic definitely has its advantages. Aside from catching up on your Netflix shows, hopefully you are taking control of your financial wellbeing as well. With the 2020 tax season on the way it’s the perfect time to start gathering all the information you will need to maximize your return. It is also a good time to strategize how you can lower your tax margin so that you pay little or no taxes or you will get a bigger refund. Here are some things to do as you prepare yourself for the next tax season.

Make a Note of any Major Changes

We all know that if there is anything we can be certain of, we can be assured that there will be changes in life. While there are changes we may not welcome, we must live with them when they do occur. Make not of any life changes that will affect your tax return. These include:

• Filing status changes – Did you get married, divorced, have a change in your dependent, a spouse who died? These are changes that will affect your tax return so make a note for your tax preparer.

• Earnings – Did you change or add jobs this year? Did you start, add or dissolve your business? How about a side gig? Make a note of any changes in your income to make it easier when tax time comes around.

• Natural Disasters – Are you in a state that experienced loss or damages due to a declared natural disaster? Keep a record of all damages, receipts and expenses associated with you dealing with the aftermath.

• Properties – Did you acquire or part with any asset including properties? Letting your tax preparer informed can save you much headache and money as you may have to pay taxes on the proceeds. A good tax preparer will work to minimize the tax consequences from these property changes.

• Bank changes – If you changed bank or bank account then keep this information readily available for direct deposit from your tax refund.

File W2’s, 1099’s and all Income Statements Safely

Make sure you have a designated place where you keep tax information files that you will need when the time comes. This includes digital copies as well and I recommend a folder where it’s accessible on demand such as Google drive. Keep all W2’s, 1099’s, 1098’s, expense receipts, and anything else you feel will be relevant. A good rule of thumb is to also keep a copy of your prior year’s taxes on hand. Companies are required to mail employees their W2’s no later than January 31st so if you don’t get it in January, expect it early to mid-February. If you have moved recently, now is the time to update your address with your employer so that your W2 gets mailed to the correct address and doesn’t cause delays. If you are an independent contractor and you made more than $600 from a job you did, make sure to get a 1099 from the company or person you did the job for and put these away in your designated file location to be ready to include in your tax return. Here is a list of items:

• Copy of prior year’s taxes

• W2’s

• 1099’s – (MISC, INT, DIV, R…ETC)

• 1098

• 1095-A

• Expense Receipts

• Notice 1444 for Economic Impact Payment

• Unemployment Income

• Personal Information for dependents

Gather Receipts and Proof of Expenses

Gathering receipts can be a daunting task especially if you use cash to purchase items regularly. If this is your case, keeping a record of your purchases will help alleviate the work of doing it all at the end of the year. Having a system in place to keep receipts throughout the year will be your saving grace and may help you to avoid paying extra in taxes for the upcoming year. Remember to keep personal and business expenses separate as this can spell trouble in the event of an audit. Here are some things to keep in mind as you gather your receipts:

• Home office expenses 

• Expenses for independent contractors 

• Business expenses 

• Rental property expenses

• Mileage and business travel expenses

• Unreimbursed job expenses 

• Legal expenses 

• Medical expenses 

• Mortgage interest and real estate taxes 

• Charitable giving

• Energy savings expenses 

Retirement Contributions

Saving towards retirement not only helps to provide security for your future but has current tax savings benefits as well. Contributing into a 401K, 403B, Traditional or Roth IRA plan reduces your taxable income and essentially lowers your taxes. Maximizing your contribution towards your company plan is something you should consider as you prepare to go into the upcoming year. For the 2020 year you are allowed up to $19,500 for a 401K and 403B plan. For Traditional and Roth IRA’s the limit is $6,000 and $7,000 if you are age 50 or older. For couples who file jointly, you are allowed to have your own separate retirement accounts and contribute the maximum into both as long as your total contribution does not exceed your joint taxable income. This can be a tax incentive for you if you are looking for a way to lower your taxes. 

What about the stimulus payment I received?

For most people affected by job loss or reduction in income during the 2020 pandemic, the stimulus payment from the IRS was a welcomed relief. If you are worried that you will be taxed on the payment you need not worry anymore. According to the IRS website you will NOT have to pay it back nor will it be included in your taxable income on your Federal income tax return. It is also not an advance on your tax return for 2020. The money you received is yours and you are free to do whatever you want with it.

Make sure you have all your filing documents before you give them to your preparer to do your tax return. It’s best to wait a little to the end of February as companies sometimes wait until the deadline to mail out required forms. Delaying a little and having all the forms is better than adjusting a tax return that has already been transmitted. 

If you have questions about your tax return or you need a tax preparer, see our tax services here or send an email to: service@thebusinessfront.com