Filing taxes can be a tedious process, especially this pandemic. There were many changes that were implemented that some people might not be aware of. Therefore, here are some tips to lessen the hassle of filing your 2020 tax return.
|1. Research and Gather Information|
|2. Prepare the Necessary Documents|
|3. Know the Important Deadlines|
|4. File Your Return as Early as You Can|
|5. Use Electronic Filing and Direct Deposit|
|6. Choose the Best Method in Filing|
|7. Pick the Convenient Method of Payment|
|8. Identify Benefits and Payments which are Taxable|
|9. If You Miss a Deadline, Act ASAP|
|10. Ask for Help when Needed|
Research and Gather Information
Before filing your tax return, prepare by researching information about the procedures and the needed documents from different sources. The faster you get the needed information, the quicker you can file your 2020 tax return.
You can start by checking your 2019 tax return. List your sources of deductions and payments, and use that information to make a check-off list for your 2020 tax return. Also list your new deductions and new sources of payments. Then double-check everything just to be sure its complete.
Prepare the Necessary Documents
There are many documents needed in filing your tax return. It will be helpful if you will arrange them as soon as you can. Here is a list of the important documents needed.
- Form W-2 – this is the Wage and Tax Statement. Every end of the year, the employer is required to give this to all employees and to the Internal Revenue Service (IRS). This form shows an employee’s annual salary and the taxes that were deducted from it.
- Form 1099-NEC – this is a new form used for reporting self-employment income of about $600 or more. This replaced the traditional Form 1099 MISC.
- Form 1099 MISC – the new 1099 MISC reports miscellaneous payments like royalties, rents, and backup withholding.
- Form 1099-B – this reports income from Barter Exchange or Broker. This has no minimum amount.
- Form 1099-DIV – this form is to report the received dividends and distributions from investments.
- Form 1099-INT – this tax form is used to record that a bank, brokerage, or another financial institution paid you an interest of more than $10.
- Form 1099-K – this includes all payment transactions that can be reported. Examples of reportable transactions are: third party network and payment card transactions.
- Form 1099-R – this reports your distributions that costed more than $10. This includes: retirement or profit-sharing, individual retirement arrangements, pensions, annuities, survivor income benefit plans, and insurance contracts.
- Bitcoin and Virtual Currencies Documents – just like other properties, these are also taxable.
It is important to have the correct tax form, because without it you will not be able to verify your income. Therefore, filing your tax return will be delayed.
Know the Important Deadlines
You should know the important due dates to plan and prioritize your tasks. Here is the list of dates that you should remember:
- Individual Income Tax Return – the deadline for filing this is on April 15, 2021.
- IRS Form 1065 – this tax document reports the losses, credits, deductions, and profits of a business partnership. This is due on March 15, 2021. IRS extended the deadline to September 15, 2021.
- IRS Form 1120 – the US Corporation Income Tax Return is used to declare the profit, gains, credits, losses, and deductions of a corporation. This is also used to figure out a corporation’s tax liability. These are due on April 15, 2021, and its extended deadline is on October 15, 2021.
- IRS Form 1120-S – this is similar to IRS Form 1120, but focuses on the S-corporation returns. These are due on March 15, 2021, and its extended due date is on September 15, 2021.
- Foreign partnership returns – these are filed on Form 1065, and like other partnership returns, its deadline is on March 15, 2021.
- Estate, trust, and gift tax – the due for filing them is on April 15, 2021.
- Nonresident alien returns – the deadline for these is also on April 15, 2021.
- Exempt organization returns – If an exempt organization received a gross income of $1000 or more from a business which is unrelated, they are required to file Form-990T or Exempt Organization Business Income Tax Return. These are due on May 15, 2021.
File Your Return as Early as You Can
Filing early will reduce the pressure to you and help you avoid identity theft. Each year, IRS only allows 1 tax return per social security number. Therefore, filing your tax return early will protect you against identity theft.
Use Electronic Filing and Direct Deposit
It is recommended to use the electronic filing because it is faster and safer as compared to filing a paper return. Through e-filing, the IRS receives the submitted tax return quicker. Therefore, this allows you to check online your return and refund sooner.
When you file a paper return, you can only check your status in about 4 weeks. However, when e-filing is used, your status might be available as soon as about 24 hours.
Choose the Best Method in Filing
For the process of filing, you can choose among the different tax preparers or commercial software that are authorized as electronic file providers (https://www.irs.gov/e-file-providers/authorized-irs-e-file-provider-locator-service-for-tax-professionals).
You can also try filing using IRS Free File which makes use of the most recent encryption technology so you can be rest assured that it is safe to use. Through this method, you can also see your refund status in about 24 hours after your filing.
This Free File is available through IRS’ tax preparers and software partners, and it has two options which are:
- Those with an annual income of $72,000 and below – A partner site should be used with guided preparation, which includes the state tax filing.
- Those with an annual income of above $72,000 – If the payer knows how to prepare paper forms, fillable forms should be used. This has no state tax filing.
Pick the Convenient Method of Payment
The income tax return can be paid even without paying the due taxes. However, you have to make sure that you make the necessary payments on or before the due date. This is to avoid penalties and interest.
There are many modes of payment that you can choose from, so be sure to pick which is the most convenient for you. These modes are:
- Through cash
- Using check or money order
- Through credit card or debit card
- Directly paying using your bank account
- Through electronic funds transfer (EFT)
Identify Benefits and Payments which are Taxable
- Economic Impact Payments – these are not taxable and should not be included in your 2020 tax return. After receiving this payment, you are supposed to receive Notice 1444 in your mail. When you do receive it, and think that there is something wrong with the payment, you can use it to claim a Recovery Rebate Credit.
- Unemployment Compensation – these are taxable and should be included in your tax return. You may receive penalties if you did not withhold these payments and did not make estimated payments. Internal Revenue Service gives information on how to declare them in your tax return.
- Family Leave or Sick Leave – these are also taxable and should be reported in the W-2 form.
- Social Security Withholding Deferral – If you chose to defer Social Security Withholding from September 1, 2020 to December 31, 2020, you will be able to see this on your W-2 form. You should repay the deferred amounts by asking your employer to increase your withholding right after January 1, 2021.
If You Miss a Deadline, Act ASAP
When you missed a filing or payment due date, you might be given financial penalty or be charged with extra interest. The penalty for late filing of 1040 return is about 5% of the tax, up to 25% overall, and extra fees will be added after 60 days. Internal Revenue Service mentioned that if you missed a deadline, you must file your tax return as soon as you can. If there are taxes that you still haven’t paid, you should pay them as soon as possible too.
Ask for Help when Needed
If you have some questions or clarifications, the Internal Revenue Service suggests that you find the answers online. You also have the option to call IRS, but waiting time on speaking to a representative might take too long. This is useful for less complex questions.
You can find a tax pro and other information using the IRS Services Guide and common tax questions can be found on IRS Interactive Tax Assistant. Volunteer Income Tax Assistance (VITA) can also help you with your taxes, as well as Tax Counseling for the Elderly (TCE). There are also free online tools from the Internal Revenue Service which may help you with your taxes.
In summary, paying taxes and filing returns can be a tough thing to do. However, with proper planning and scheduling, you just might finish everything on time. Conduct thorough research and double-check all documents, so you can avoid having problems in the future. You should ask for help when you need it, and use all the available information and tools online. You can then use the same tips for the tax return next year.