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Filing Taxes: What You Need to Know Before Tax Season

It’s that time of year! To help you prepare ahead of filing taxes this tax season, we’ll discuss:

  • What documents and information to gather
  • Why you might want to consider last-minute deductions
  • The best time to file depending on whether you’re expecting a refund versus owing additional tax

Keep in mind that for specific questions or concerns about filing taxes, it’s best to consult a trusted tax professional. 

Decide Who Will File Your Taxes

How complicated do you expect your tax situation to be? Did you have a major change last year, like a divorce or marriage? Or did you start a business, cash out a 401(k) or have a child? If so, you may need professional help filing your taxes. That’s why it’s always best to know early on whether you’ll need a pro. (Keep in mind that their prices could rise closer to the April 15 tax filing deadline.) 

The Internal Revenue Service reports that more than 80 million taxpayers used paid professionals to complete and submit their tax returns last year. If you plan to go this route, it’s important to organize your receipts, forms and other documents well before tax time. 

You May Be Able to File Your Taxes for Free

If your tax situation doesn’t require a professional this tax filing season, you may want to look into IRS Free File. This public-private partnership between the IRS and the tax preparation software industry provides brand-name tax filing products for free to many Americans, which means you could prepare and file your federal income tax online for free.

Gather Documents

Now is the time to gather up: 

  • W2s
  • 1099 forms
  • Donation receipts
  • Calculated childcare costs
  • Medical bills paid out of pocket
  • Investment interest tax forms
  • Property tax receipts
  • Student loan interest payments
  • Anything else related to your financial life from the past calendar year 

You or your tax professional may not need it all, but being armed with more is better than less when it comes to tax filing. 

Compile Personal Information

Chances are you have your own Social Security number memorized. Whether you file taxes electronically yourself or with the help of a tax professional, you’ll need to have your spouse’s Social Security number if filing taxes jointly, and those of the dependents you’ll claim as well. 

Additionally, you may need addresses, dates, and dollar amounts of vacation and rental properties if you bought or sold them last year. Now’s the time to pull together and write down all of this information to make tax filing season seamless. 

Have a Copy of Last Year’s Return on Hand

Cross-referencing this year’s return with your last can be helpful in making sure you don’t forget something, like a deduction you’re still eligible for or a source of passive income you need to claim. 

Consider Last-Minute Retirement Plan Contributions

The 2020 IRA contribution limit was $6,000 plus $1,000 in catch-up contributions for those 50 and older. If you have extra savings and haven’t maxed out your retirement plan contribution yet, you may be able to reduce your taxable income to pay less tax this year.

Be Mindful of Tax Scams

One thing you need to know before filing taxes is that there are many tax scams out there to be mindful of, including tax preparers promising to deliver a bigger return. Remember that you sign your returns under penalties of perjury. Even if you work with a tax professional, it is you who’s responsible for any incorrect or misleading information, whether it’s a mistake or fraud. Make sure the person preparing your taxes is well-credentialed to reduce your risk. Additionally, you should never respond to telephone calls or emails claiming to be from the IRS or the U.S. Treasury. The only way the IRS will correspond with you is through the U.S. Mail, meaning that those phone calls and emails are not on the level.

Need More Time?

If you need an extension this tax filing season, you can submit a request by April 15, 2021, or your particular tax deadline. You can push your due date out up to six months. And you won’t be alone in doing so, either. Last year, 12 million Americans needed more time for filing their taxes.

Make a Plan for Your Refund

If you expect to receive a tax refund, make a plan for what you’ll do with that money so that you make the most of it. Will you put some away in savings, pay off credit card debt or give to charity? What you do with your refund is up to you, but it’s best to have a plan before your tax refund arrives in your bank account.

File Your Taxes

Of course, all of your diligent tax season preparations should culminate with the filing of your taxes on time, so mark your calendar!

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