Tag: filing your taxes

While most of us are happy to leave 2020 behind, there’s still one more loose end to tie up. Filing taxes. With the global pandemic, there have been some significant changes to the tax code. So, you need to be up to date on what those changes are.

1.   Tax Bracket Changes

Tax brackets have changed a bit, so depending on your income, your household tax bracket may change. The rates themselves haven’t changed, but the brackets have increased by a marginal amount to cover annual inflation.

As an example, if you are single and made $86,100 in taxable income last year you would be in the 22% bracket. That doesn’t mean that you’re paying 22% on your entire income, just that you are taxed up to that amount. You’re taxed 10% on the first part up to about $14k, then 12% on the next part up to nearly $54k, and 22% on the last approximately $24k.

2.   Boost To Charitable Contributions Allowance

Owing to the Coronavirus Aid, Relief, and Economic Security Act, also known as CARES Act, you will no longer have to itemize the deductions in order to claim charitable contributions. So even if you don’t itemize and simply take the standard deduction for the 2020 tax year, you can still deduct $300 in donations to charity. Additionally, if you do itemize, you can deduct up to your full remaining adjusted gross income, based on your donations to charity.

3.   Stimulus Checks

One of the more widely-known benefits of the CARES Act, was the aid payments of $1,200 and $600. These were sent to millions of Americans. These payments were aimed at giving people some cash relief during the initial and continuing economic shutdowns. While they are not counted as taxable income, they are going to be treated as our old friend the “refundable tax credit” that is basically an advance on next year’s refund.

4.   Unemployment Benefits

This year was hard for a lot of people. Many of them needed to turn to unemployment benefits to try to stay afloat. If you were one of those people, you may have had the option to have income taxes automatically withheld. If so, hopefully, you used that option, otherwise, you will need to pay up come tax time. However, if you do owe, you can pay all at once. You can also split the amount into 4 payments that you would pay as quarterly payments.

5.   No-Penalty Retirement Withdrawals

If you needed it, the CARE Act allowed workers under 59 and a half to pull up to $100k from their 401(k) plan or IRA without any penalty. This does have the negative of counting as income and is then taxed as such. However, if you put it back into your IRA or 401(k) plan inside of three years, that tax can be refunded back.

With the yearly tax deadline rapidly approaching many people are gearing up to try to make the process as painless as possible. This year was hard on a lot of people, so many of them want to at least make the unpleasant business of taxes as easy as they can. Here are 5 great tips to make sure you’re ready to file on time.

1.   Get Organized

This is one of the most significant and powerful things you can do to be prepared for the annual chore. Most times, you can get a lot of pertinent info from last year’s return paperwork. However, if you’ve moved, bought a house, gotten married, or had a baby, then there are additional deductions you may be able to claim. Keep all that paperwork together in a folder for tax time, and file important emails in their own folder to be printed ahead of time if needed.

2.   Get Help

If you need some in-person, face-to-face help, you may be able to get IRS-endorsed help through a program called VITA, the Volunteer Income Tax Assistance program. Low-income taxpayers who earn $57k or less annually, or are disabled, can get help from the tax preparers in VITA. Those in active-duty capacities in the military even have their own tax channels like TurboTax Military or TaxSlayer Military to help them get the most out of filing.

3.   Don’t Forget Your Retirement And Charity Contributions

Make sure that you are aware of your IRA and 401(k) contributions, limits, and overages. You have until the tax deadline to make any IRA contributions that you need to make to catch up, and if you’ve contributed excess, make sure to withdrawal to avoid penalties.

Charity contributions have also changed this year. If you are taking the standard deduction you can automatically claim $300 in charitable donations without needing to itemize. If you itemize you can claim up to your entire adjusted income.

4.   File For Free

The IRS allows any individuals or families with an income below $72k to use the Free File software to both prepare and file their federal taxes. It will also allow the free filing of state taxes in some states. Even those with incomes over the threshold can use the IRS’ Free File Fillable Forms, though they do generally need someone familiar with paper filing.

5.   File For An Extension If You Need It

There’s no sugar-coating it, tax season is stressful. Not only is there a nationwide rush to file in the final few weeks, but that is also when millions of Americans file an extension. A tax filing extension needs to be filed by April 15th. However, it does allow until October 15 to finish filing your return.

There is a catch, however, and any estimated owed taxes by the original tax deadline. If not, they will accrue penalties and interest. If you aren’t sure how much you’ll owe, start by paying what you paid the previous year.

Many people think that filing their taxes is a complicated process. The IRS is known for collecting your money and auditing if something is wrong, and you don’t want to be audited. If it’s your first time filing taxes, it is easy to be intimidated by all of the forms and situations that are available to file for.

Filing taxes does not have to be needlessly complicated though. For many people, taxes do not have to be difficult. By following some simple steps, you can file your taxes simply and without worry.

Gather All of Your Tax Documents

Having your tax documents prepared will help your filing go by faster. As your tax information comes in, store them in the same spot that you can access easily when you’re ready to file. This will also simplify what kind of taxes you need to file and how you will file them.

Some of the documents you will want to have are

• W-2s
• 1099s
• Tax forms that report incomes
• Tax deductions
• Receipts

This information being readily available will help you streamline your taxes. When you have all of your information in front of you, it will be much easier to know where you need to go and what you qualify for. 

Don’t Forget About Gig Economy Income

More people are relying on making money through the gig economy. Whether you make money driving or delivering food, freelancing, or working as a consultant it is important to remember to declare that income. Some gig economy jobs also have deductions that you can note.

Some jobs have a 1099-MISC for the work done. Even if there is not a form attached, you will still need to report your income. Keeping track of your income if you make money freelancing or another gig job is crucial. You will also want to keep track of any miles you drove, supplies, and advertising costs because these costs can be deducted.  

File Electronically

Almost anything can be done online today, including filing taxes. Software exists to help make sure that you file them correctly and will tell you how much more you owe or will receive. Filing electronically will also save you postage and time.

People who file electronically also get their returns quicker. It is also easier to note your banking information so that your returns can go directly into your bank account. 

Conclusion

Filing taxes can seem daunting, especially when it’s your first time. These tips can help it go smoothly so you don’t have to worry about your them being filed correctly. With some thinking ahead, documents, and software you can file your taxes quickly and easily.

When you’re able to file them quickly, you will also receive any refunds that you’re owed quickly. Filing taxes does not have to be a scary process to go through. For many adults, it can be completed and filed in a day, that’s how quick and easy it can be.