If you haven’t filed your taxes yet, good news: The IRS has pushed the deadline to Monday, May 17. That means you have seven weeks to get everything in order and file. Now, as you probably know, taxes don’t usually require just a simple click of a button. So, you want to make sure that you have all the documentation you need before you start—and that’s still the case if you have a tax professional filing for you. Once you get everything ready, then comes filing.
5 Things to Consider As you file (or get ready to), there are a few things to keep in mind this year. Not to mention, some of these may be great things to remember for next year, too…
1. The stimulus checks.
The first stimulus check went out to millions in the U.S., after it was passed in March last year. Married couples would’ve received $2,400, if their income was no more than $150,000, and individuals would’ve received $1,200, if their income was no more than $75,000. Plus, taxpayers would’ve received $500 for each child. The amount of the check would gradually reduce the higher the income level. The second check worked out similarly, except individuals received $600, and married couples received $1,200. Those with children under 17 also received $600 for each child. If you’re one of many who’s gotten these checks, remember, the money isn’t considered to be taxable income. So, other than checking the box on the form confirming that you already received the direct deposit or check in the mail from the IRS, there’s no need to report it as income when you file.
Now, if you’re someone who didn’t receive either one, and you believe you should have, there’s something you can do when you file this year. It’s called the Recovery Rebate Credit. And you can claim it to get the check(s) you never received.
Keep in mind, this won’t work for you if you didn’t meet the requirements in the first place… Like, if your income was too high or you didn’t file your taxes for 2019. So, before you claim the Recovery Rebate Credit, make sure you’re eligible.
2. Itemizing may work out better for you. Last year, the standard deduction—which is the amount the IRS automatically deducts from your taxable income—was $12,400 for individuals or married couples choosing to file separately, and $24,800 for married couples filing jointly.
Now, many of us don’t even think twice about whether we should go standard or itemize. After all, the standard deduction is the better option for many taxpayers. But several things we spend money on throughout the year are tax deductible…
If you spent more than 7.5% of your adjusted gross income (AGI) in 2020, any expenses you have above that are tax deductible.
Your AGI is your gross income after subtracting pre-tax deductions you made during the year, such as health insurance through your employer or any contributions to your 401(k). This would not include a Roth 401(k), if you’re wondering.
So, if you make $30,000 a year, 7.5% of $30,000 would be $2,250.
If you spent $2,750 on qualified medical expenses, such as prescription glasses/contact lenses, medications, dental cleanings, or insurance premiums you paid using after-tax dollars, then $500 would be tax deductible ($2,750 – $2,250 = $500).
If you donated or gave to a 501(c)(3), that’s also tax deductible. Those would be any organizations like charities or churches.
If you contribute to a health savings account (HSA), that’s tax deductible, too.
And if you are a homeowner, you can deduct your property taxes, private mortgage insurance (unless your AGI is more than $109,000), and mortgage interest payments from your taxes this year, as well.
So, if these home-related payments cost $17,000, and you donated $3,000 and contributed $5,000 to the HSA plan you have, that’s $25,000—a little more than the $24,800 standard deduction for a married couple, and more than twice as much as the standard deduction for individuals or married couples filing separately. So, whether you’re single or married, itemizing would work much better for you, in this case.
Just always remember to keep good records. Keep your receipts and make copies, in case you’re ever audited.
That includes donations. The charity or organization you gave to should provide you with a tax receipt. And if you donated piles and piles of clothes worth $3,000, you should have clear pictures of each article of clothing you donated.
There are plenty of ways you can do this, but CamScanner is an app you can use to easily turn a bunch of photos into one PDF. (If you have an Android, you can check it out here. If you have iOS, you can check it out here.
3. Doing taxes on your own isn’t as hard as you think.
Filing your taxes may not be quick and painless, but it may not be as difficult to do as you may think.
You don’t have to be an accountant by trade to file taxes on your own. In fact, there are plenty of tax filing software programs that guide you every step of the way. There’s TaxAct, TurboTax, H&R Block, the list goes on. And the IRS has a list of software you can use to file for free.
Click here, if you want to find out more. If your tax situation isn’t too complicated, I strongly encourage you to try filing on your own. You may save yourself some money.
4. Don’t put your taxes off until the last minute.
There’s still plenty of time to file your taxes, especially since the new deadline is now May 17. But that doesn’t mean you should wait.
Again, taxes don’t take forever to file, but they do take a little bit of time and diligence. Give yourself some time. That way, you’re not rushing.
If you’re anything like me, you’ll make a mistake (or two) if you rush, or you’ll forget something. So, start sooner rather than later, even if you don’t think you’ll need that much time to do your taxes.
5. Double-check everything before you click the button, and save your documents.
It may sound like a no-brainer, but before you click “File,” or “Finish,” go back and review your work.
Mistakes happen. Even if you took your time and were very careful every step of the way, you could’ve easily missed something.
Nobody’s perfect… Not even the professionals. So, even if you don’t think you made any errors, just take the few minutes it takes to go back and check. It could save you a lot of time, trouble, and money down the line.
Going back and reviewing everything is useless, if you’re tired. If you can, double-check your taxes the next day. This way, your brain and eyes are fresh.
And be sure to save everything. Save your W-2(s), 1099(s), 1098(s)… any and everything. And, yes, your 1040 return, of course. Even if you know you made no mistakes, you may be audited in the future. So, be sure to save these documents, including your receipts if you itemize, for at least the next three years.
These are just a few things to remember as you file this year.
I’ll share some more when we get even closer to the deadline. In the meantime, if you have any specific questions for me, feel free to reach out right here.
With gratitude,
Melody C. Kerr, MS
Certified Financial Coach
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