Doing Your Own Taxes? Make Sure You Follow These 15 Tips
Tax season is underway, and millions are hoping for a refund or, at the very least, to minimize what they owe. Whether you file your taxes early or procrastinate until the last minute, knowing a few basics can help put more money in your pocket.
1. Find Out If You Need To File
If you need help determining whether you’re required to file a federal income tax return this year, use the IRS’ online Interactive Tax Assistant. You need to answer a few basic questions about your filing status, gross income and whether you had federal income tax withheld, and then the IRS tool can help.
2. Gather Social Security Numbers
To prepare any tax return, you will need your Social Security number, the nine-digit piece of information that follows you throughout life.
“Make sure you have the Social Security numbers for yourself, spouse and all dependents,” said Kay Bell, tax journalist for the blog Don’t Mess With Taxes. She added that to claim some credits — such as the child and dependent care credit — you’ll need to provide a Social Security number or other ID numbers.
3. Determine Your Filing Status
Your filing status is based on what your marital status was on the last day of the tax year, and it applies to all of the tax year. There are five possibilities:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
If you legitimately fit into more than one category, pick the one that requires you to pay the least amount of taxes.
4. Review Your Previous Returns
Pull out your federal and state tax returns from the previous year. The information will help you start your tax return because some of your entries will be the same. Other entries will prompt you for missing information or forms you need to collect.
Also, you might need to make changes if you had important life events in the last year, such as getting married or divorced, having a child, going to school or changing jobs.
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5. Gather Your Documents
For income information, you’ll need the forms you received from employers and banks, which might include some of the following:
- Form W-2 (wages)
- 1099-INT (interest)
- 1099-DIV (dividends)
- 1099-B (investment sales)
- 1099-MISC (independent contractor work, royalties)
- 1099-R (retirement distributions)
- K-1 (MLP, partnership or S-Corp share of income)
- SSA-1099 (Social Security benefits)
- 1099-G (unemployment benefits and state tax refunds)
- W-2G (gambling winnings)
- 1099-C (forgiven debt)
Next, if you had any adjustments to income, you might need any of the following forms:
- 1098-E (student loan interest)
- 5498 (IRA contributions)
- 5498-SA (HSA/MSA contributions)
- 1098-T (tuition)
Finally, if you itemize your deductions or receive tax credits, you might need forms such as:
- 1098 (mortgage interest)
- 1099-LTC (long-term care benefits)
- 1099-SA (HSA/MSA distribution)
- 1095-A (insurance marketplace statement)
- 1095-B (health coverage)
- 1095-C (employer-provided insurance coverage)
You’ll also need any personal receipts for expenses such as charitable contributions, unreimbursed employer business expenses, medical expenses, and moving expenses.
6. Know Which Deduction To Take
If you’re not sure if you should itemize your deductions, there’s a relatively simple way to determine the best choice for your situation. “If you have enough itemized deductions to exceed the standard deduction, itemize. If you don’t, take the standard deduction,” said accountant Eric J. Nisall, founder of AccountLancer, which offers accounting help for freelancers. “If you’re not sure, put everything in and let your tax program of choice tell you what to do.”
If you don’t itemize, you’re in the majority. Just around 30% of taxpayers itemize their deductions.
7. Know the Deadline To File
Your income tax return has to be postmarked on May 17. The date for federal tax filing has been pushed, but this does not mean the state deadline of April 15 has been pushed.
8. File Your Federal Tax Return for Free
Free tax filing is available to taxpayers who meet certain requirements — the IRS offers Free File where you can file your federal taxes without paying any fees. The version you can use depends on the amount of your adjusted gross income.
If it’s below $66,000, you can use the available free filing software.
9. Deduct Your Medical Expenses
If you itemize deductions, you might be able to deduct specific medical expenses for the costs of diagnosis, cure, mitigation, treatment and disease prevention. These costs include payments you made for medical services provided by physicians, surgeons, dentists and other medical practitioners. The costs also include spending on equipment, supplies and diagnostic devices. In addition, you might be able to deduct:
- Health insurance premiums for coverage not provided by an employer
- Travel costs
- Long-term care insurance premiums and long-term care services
However, there is a threshold you must meet before you can deduct such expenses. You can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income on Schedule A (Form 1040).
10. Deduct Travel for Medical Treatment
If you drove in 2020 to get to a hospital, doctor’s office or dentist’s office for the purpose of medical treatment, the cost of getting to and from the facility or office is deductible at 2 cents per mile.
11. Deduct Your Mortgage Interest
If you paid interest on a mortgage, the interest amount might be deductible if you itemize deductions. You might also be able to deduct interest on a second mortgage or a home equity line of credit. Make sure you get Form 1098, a mortgage interest statement, from your lender if you paid $600 or more in mortgage interest.
12. Properly Deduct Charitable Donations
If you want to claim a deduction for charitable contributions, you must itemize your deductions, said Nisall. “Any single cash donation over $250 or non-cash donation in excess of $500 should have a receipt in your records — and it would be ideal to have a receipt for any donation,” he added.
However, not all donations are deductible. For example, you can’t deduct the entire amount of your donation if you received a benefit like a fancy dinner at a fundraiser. You have to subtract the fair market value of the meal from the amount of your donation.
13. Gather Health Insurance Tax Documents
You might receive a Form 1095-A, Form 1095-B or Form 1095-C for the medical care coverage that you had or that was offered to you. This is yet another important document to keep track of for tax-filing purposes.
“You and each member of your family must have qualifying health insurance coverage for each month of the year, or qualify for an exemption from the coverage requirement — or make an individual shared responsibility payment when you file,” said Bell. “Filers who get coverage from the marketplace will need the Affordable Care Act 1095 forms to make sure they file properly. If you have coverage through your workplace, you’ll simply check a box on the return.”
14. Find Out If You Qualify for EITC
If you worked in 2020 but had low to moderate income, you might qualify for the earned income tax credit. You don’t need to itemize your deductions to receive this tax break because a tax credit reduces the amount of tax you have to pay. You might even get a refund. The requirements are strict, so the IRS provides an online EITC Assistant to help you figure out if you qualify for this benefit.
15. Report Your Unemployment Income
If you weren’t employed in 2020, you might think that you don’t owe any income taxes. However, if you received unemployment compensation, you have to declare it and pay any taxes you owe. So, don’t ignore that 1099-G you got. “The Internal Revenue Service got a copy, too,” said Bell.
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Taylor Bell contributed to the reporting for this article.