4 Tips to Help Breeze Through Your 2020 Taxes

It’s that time of year again, tax preparation time! With the New Year celebrations long gone, tax time is fast approaching and as always, it’s important to make sure you’re prepared for submitting your 2020 taxes. If there’s one thing last year taught us, it doesn’t hurt to be prepared. However you decide to file your taxes, it’s a good idea to prepare for tax season sooner rather than later. The deadline is April 15, 2021, so plan around this date and don’t hope for extensions. Here are four tax tips to help you breeze through your tax prep.

 

  1. Gather and Organize Your Documents

Make sure you dedicate a few hours to gather all the necessary documents and financial records you’ll need to make the filing process faster and easier. Have a folder or file created where you can store these documents ahead of your filing appointment or date. Some of your documents may be stored digitally, so comb through your email notifications to make sure you have them saved and ready. Below is a list of documents to have ready:

  • W-2s from employers. If you have multiple employers or worked at different businesses during 2020, make sure you have all W-2s.

  • 2019 Federal and State Tax Return

  • 1099 forms for self-employed or contract-based work

  • 1099-INT forms for any interest earned

  • Documentation of any charitable donations, mortgage interest statements, investment payments or any other deductible expenses.

 

  1. Don’t Forget Unemployment and Stimulus Payments

2020 saw a record number of individuals receive unemployment income which is considered taxable income by the IRS, so you are required to report it. Make sure you keep an eye out for Form 1099-G which will detail the benefits you received. Hopefully you elected to have taxes withheld, preventing any surprises of owing money to a tax bill. If you didn’t, be prepared to pay taxes on the benefits you received. To prevent being hit with a tax bill in the future, plan to save part of your unemployment benefits each month. If you’re one of the many who received any of the two stimulus checks that were sent out, you might be asking yourself how these checks affect your taxes. The short answer according to the IRS is the stimulus checks are not income and taxpayers will not owe taxes on it. The payment will not reduce your refund or increase the amount you owe when filing taxes for 2020.

 

  1. Choose Your Path

Deciding which path to take for filing your taxes is a big decision. You can do it on your own, or maybe hiring a professional is the best decision. This is usually dependent on your specific situation which can change annually. Ask yourself if you are comfortable navigating business-related tax forms. If the answer is no, maybe you should hire a certified public accountant (CPA). If you’re an employee with standard deductions and no contract work, doing it solo using an online tax filing site might be easy enough for you. SDCCU has a link to TurboTax to help get you started.

 

  1. Be Aware of Tax Fraud

With the digital world we’re in, the risk of fraud as it relates to taxes is ever more present. Tax fraud usually occurs when someone files taxes using your information in order to collect your refund. If this has happened to you, make sure to complete IRS Form 14039, the Identity Theft Affidavit, with your return. Moving forward, make sure to protect your information following these steps:

  • Protect your Social Security Number. Don’t ever carry your Social Security card with you and avoid storing your Social Security Number on websites.

  • Avoid clicking on any unfamiliar emails or links. Phishing attacks are very common and these attacks typically focus on getting your personal information from your computer. The safest process is to go directly to the company’s website instead of clicking a link.

  • The IRS will never contact you via phone, email or text message. Never fall for a fake call or email claiming to be from the IRS. The IRS will only contact you via mail.

  • Check your mail frequently. With W-2s and other IRS forms being sent through the mail, make sure you’re diligent about checking your mail. Mail thieves take mail similarly to the way porch pirates take packages. With so much identifying information on these IRS forms, mailboxes are a fraudster’s dream.

  • If you don’t need it, shred it! Make sure to shred old documents that may contain your personal information, and secure those you still need. If you’re unsure of what to keep vs. shred, check out our latest blog on this topic, and watch for shred events in your area.

After the tax process is completed, take stock of where you sit. Did you get a return? If so, try using your tax return to help build your savings, pay off debt or contribute to a retirement fund. This is a good opportunity to give your finances a closer look and monitor areas you think need some improvement. Looking to improve your credit score? Want to expand your retirement options? Visit our Financial Knowledge Blog to learn more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.
 
Consult a tax advisor.