We may have just rang in the New Year, but it’s time to start thinking of tax season! Depending on how on top of your bookkeeping you were in 2020, the process can be pretty simple or incredibly difficult. Tax Day this year is scheduled for Thursday, April 15. Although the country received a three month extension in 2020, we should not plan for one this year - plan on getting your tax return filed by April 15 at the latest.
Decide how you’ll file & who will file for you.
Have you had a major life event occur in the past year that will impact your taxes? This could be a marriage, divorce, widowhood, or parenthood. If yes, this will need to be updated on your tax return and you will need to decide how you’d like to file.
Next, determine who will file for you. If you’re thinking of switching tax advisors or getting started with one, be proactive. The longer you wait, the less available tax advisors will be.
Begin collecting tax forms as they arrive.
The beginning of a new year triggers the start of income tax forms! If you make money from more than one source, you should receive documentation from each. This includes your day job, any side hustles (which have become big!), rental income, interest income, or capital gains. Store these documents in a safe place as they arrive until you are ready to start filing.
Get organized to avoid mistakes.
The more organized you are, the fewer mistakes there will be. Take the time to sort through your papers and receipts, categorize accordingly, and figure out what you’re missing and how to obtain it.
It’s important to take advantage of the deductions that apply to you, but it’s just as important to pick and choose what you are deducting. An experienced tax advisor will work to ensure you receive any necessary deductions, but aren’t over-deducting or under-deducting.
Log any charitable donations.
While 2020 was a tough year for many, there were others who were able to donate to frontline workers in their communities and non-profit organizations across the region. If you were fortunate enough to be able to help those who were struggling, make sure you log the charitable donation(s) accurately. A tax advisor will know what to do.
Don’t forget about stimulus check(s), PPP loan, and/or unemployment.
This year was unprecedented, which comes with what will likely be a more complicated tax season! Why? Well, there are many extra factors to consider this year. If you received unemployment, a stimulus check, or a PPP loan, then you’ll be receiving the necessary forms in the coming weeks. These are additional forms of income that you may not have had in past years, so you need to account for it.
Start now to finish earlier.
Don’t wait until April 14th to start looking through your W-2’s…start now! The sooner you start, the sooner you’ll finish. If you run into any unforeseen obstacles, you’ll have more time to figure them out and won’t be rushing to the finish line in a fitful ball of stress!