If you took up the IRS’ offer to file your taxes late last year, you may feel like you just filed your taxes. On top of that, you may be dealing with unique circumstances this year that could affect your tax situation, such as collecting unemployment or working remotely for the first time. If your 2020 taxes are stressing you out, follow these tips to make the process a little bit easier.
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“Proper organization will help you save time as well as allow you to gather the required documentation and file your return early,” said Michael Corrente, managing director at CBIZ MHM. “Use your prior-year tax return as a guide to gather the documents you will need, such as W-2 forms, 1099s and mortgage interest statements.”
Begin collecting and filing all tax documents that you receive either electronically or by mail so that you have them all in one place.
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Decide If You Need Help
“2020 was a year unlike any other. If you think you need help answering questions, reach out to a qualified professional,” Corrente said. “A qualified professional will be able to handle all of the various tax law changes that occurred during 2020. In addition, a qualified professional can file your taxes electronically for a faster processing of refund claims. Alternatively, there are a number of different tax preparation software options available that will provide you with step-by-step answers as well as allow you to file electronically.”
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Once you’ve gathered all the necessary documents and figured out whether you will be hiring an accountant or doing taxes yourself, start the process of filing ASAP.
“The earlier you do it, the quicker the drama is over,” said Tatiana Tsoir, CPA, founder of Linza Advisors.
Plus, the earlier you start, the more time you can give yourself to get it done.
“If the tax return filing process seems daunting to you, there is no rule that states you must complete the filing process all in one sitting,” said Brandon Berquist, CPA, tax specialist at Personal Capital. “It can be a good idea to start early and complete the return in stages, which can be less stressful and gives you the opportunity to review the return multiple times with a fresh brain.”
If Your Employment Circumstances Have Changed, Take Time To Understand What That Means for Your Taxes
Did you lose your job? Are you now working from home? You may not know the tax implications of these shifts. Here’s what Corrente said you should know.
If You Collected Unemployment Income
“Unemployment income is considered taxable income by the IRS and most states,” he said. “If you received unemployment income during 2020, you should be receiving a Form 1099-G from the government indicating how much you received.”
If taxes were not automatically deducted from your unemployment income, you may end up owing the IRS.
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If You Started Working Remotely
“One of the biggest changes during 2020 is that most people began working remotely,” Corrente said. “You are required to file a return in your state of residence as well as where you work, if those states are different. As such, some workers may have to file multiple state income tax years. Note, there are different rules that apply in each state in order to determine when a return is required for non-residence. However, in most cases, an individual will be able to receive a credit in their home state for taxes paid to the non-resident state.”
You might be wondering if you can take the home office deduction if you began working remotely this year, but, unfortunately, you likely don’t qualify.
“If you were one of the million employees working remotely from home during 2020 rather than a self-employed business owner, you, unfortunately, do not qualify for the home office deduction,” Corrente said. “However, if you are self-employed and working from home, you can claim the home office deduction if your home office meets two basic requirements: 1) There must be exclusive use of a portion of the home for conducting business on a regular basis, and 2) the home must be your principal place of business. The eligibility for this requirement can also be met if the space is used for administrative or management activities and there is no other location to perform these activities.”
If You Took Advantage of Benefits Outlined in the CARES Act, Understand the Tax Implications
The Coronavirus Aid, Relief & Economic Security Act allowed for additional aid for many Americans this year, including early withdrawals from retirement accounts for individuals.
“For those individuals that took a coronavirus distribution from a retirement account, they will need to be on the lookout for the Form 1099-R,” said Jackie M. McGuire, CPA, client service manager at Buckingham Advisors.
While these distributions are included in taxable income — over a three-year period, one-third each year, or if elected, in the year you take the distribution — they are not subject to the usual 10% additional tax on early distributions and are not subject to mandatory tax withholding, according to the IRS.
E-filing is the easiest way to file your taxes — plus, you’re likely to receive your refund sooner if you are owed one. Jennifer Marshall, director of tax services at Bryn Mawr Trust, recommends setting up direct deposit to make the process even smoother.
“Your return will be processed much quicker and you will receive any refunds in typically 10 days instead of waiting four to six weeks to receive a paper check,” she said.
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