As April gets closer, it is necessary to think more about filing your taxes for the previous year.
Regardless of how simple or complex your tax situation is, it would help if you are fully prepared. From learning important tax-related terms and processes, such as ASC 606, to finding the right professional to help with the preparation of your taxes, keep reading for some helpful tax-prep tips.
In December 2017, the Tax Cuts and Jobs Act was filed. When this happened, it took the IRS some time to revise the withholding tables fully. If you have not looked at the withholding amount present on your pay stub for this year, make sure to double-check your paycheck now.
If there is not enough tax being withheld from your paycheck, then you will have to pay taxes this year. If there is too much tax being withheld from your check, you will likely receive a refund. However, if you are like some people, you would much rather get this extra money each week.
If you are not sure if the right amount of tax is being taken from your check, you can use the tax withholding estimator from the IRS to correct everything. If not, be sure to make the needed changes.
This is especially important if your situation has recently changed. Double-checking your information now will help you avoid issues in a few months when filing your taxes.
Some changes in your life may result in a more complex tax situation. For example, did you get married or divorced? Did you open or close a business? These are factors that can make your tax situation more complex. If this is the situation, you may need to hire a tax professional or CPA to help you prepare and file your 2020 taxes.
It would help if you did not wait until April arrives to schedule an appointment with a tax preparer. By then, they are going to be pretty busy. Also, the longer you wait, the more you may be charged for tax preparation.
If you do not feel like you can handle preparing and filing your taxes on your own and cannot afford a CPA's services, you do have other options. There are plenty of more affordable tax services you can use.
One option is the VITA or Volunteer Income Tax Assistance program. This program uses IRS certified volunteers who provide free tax preparation for some returns, along with e-filing options for those who earn less than $56K per year, people with English as a second language, or those who have a disability. There is also an online location tool provided by the IRS to find a few free tax preparation sites throughout the United States. Also, the AARP Foundation Tax-Aide provides help for individuals over the age of 50 who need help with their taxes.
The beneficiary designations you choose will not impact your taxes right now, but they can impact the taxes of people you name as heirs down the road. Now is a good time to review who you have named as beneficiaries and to make changes that you believe are necessary.
You may wonder why this is something you need to do. In the future, it will help to reduce the amount of taxes that your heirs and beneficiaries must pay on your assets once you pass away. If something unexpected happens to you, having all these designations lined up and coordinated can help reduce tax bills for those who receive your assets.
Have you been stingy when it comes to funding your 401(k), your 403(b), or any other type of tax-deferred retirement accounts? If so, now is a good time to increase the contributions you are making. The money you are putting into these accounts will help reduce your total taxable income for the year, which will reduce your overall tax bill. In fact, no taxes will be applied until you withdraw funds from it.
For 2020, the limits for contributions you can make were increased compared to 2019. They are $19,500, along with $6,500 for any catch-up contributions. For those who have an IRA account with a bank or broker, the contribution limits will be $6,000 along with $1,000 for any catch-up contributions.
If you cannot make the maximum allowed contributions, you should (at a minimum) attempt to contribute the amount that your employer is set to match. You can think of this match as an instant return on the money you invest. Also, the funds are considered tax-deferred, and they will grow completely tax-free.
With tax season getting closer, many people will start to receive calls, text messages, and emails about entities that claim to be the IRS. One of the most important things that can be done is not to respond to these calls or emails. Like the U.S. Treasury, the IRS is never going to contact you via phone.
The only way that the IRS is going to contact you is through the mail. Be sure to keep this in mind. It is also not a good idea to try to "shop for a refund" to find preparers who will promise to get you a larger refund.
When it comes to filing your taxes, there are more than a few things to consider. Be sure to keep the tips and information here in mind to make the most of tax time and to ensure you get the best possible outcome. For most people, this will be not having to pay in and receiving a refund from the government. Filing your taxes may not be fun, but it is a must for everyone. By getting prepared for this now, it is possible to avoid issues down the road.