With the tax filing date pushed to February 12 this year, February is an important month for taxes. We’ve rounded up 3 key tax moves you need to make this month!
1. Collect tax statementsFebruary 1st was the deadline for tax statements to be sent to taxpayers. Of these statements, payment statements are the most important ones for an average filer. These statements list how much money you received from the job(s) you do, whether salaried or as a contractor, any unemployment benefits, investment earnings, or prize/gambling winnings.
But besides these, other documents also carry critical information which can lead to you paying less in taxes. These can include the mortgage interest you’re paying or any charitable donations that you’ve made.
Although you may be an early filer who wants to file their taxes as soon as possible, it’s in your own best interest to wait till you get all these tax statements. This is the only way to ensure all information has been entered accurately on your Form 1040.
We may have to put up with the IRS being our Valentine this year, but there’s no reason you should be inviting extra attention from the IRS by letting them find a discrepancy on your return!
2. Decide how you will be filingIf you haven’t already, you need to think about how you’re going to file. If your taxes aren’t that complicated, you may want to go the DIY route with tax prep software or opt for Free File — this is the IRS partnership with the tax software industry for taxpayers whose AGI (adjusted gross income) is $72K or less.
However, you definitely want to work with a dedicated tax professional if your taxes are more complicated, either generally or because of some havoc created by 2020. Additionally, this will help ensure that you’re in compliance with all new laws enacted as a result of COVID-19.
A tax pro can also help with the Recovery Rebate Credit (RRC) to help you get any money you did not automatically receive when the coronavirus economic impact payments were made. Additionally, they can also help with unemployment benefits — so many people lost their jobs due to COVID-19 and received these benefits for the first time. Many aren’t aware that this is taxable income! Moreover, small businesses still trying to grapple with the Paycheck Protection Program (PPP) can also benefit from professional assistance.
If you decide to opt for professional services — do it now! Tax pros have rapidly filling calendars this season, and their charges are likely to rise once the season advances.
3. Capitalize on new tax lawsTax code changes this year offer some much-needed tax relief. A tax preparer can better leverage these according to each client’s unique situation.
The Earned Income Tax Credit (EITC) may be new to taxpayers who lost their jobs recently. Qualifying for this tax break can be worth as much as $6,600 for families. In addition, using your 2019 income amounts instead of 2020 earnings may help secure a bigger credit amount.
Similarly, using your 2019 income instead of a reduced 2020 income level also applies to the Additional Child Tax Credit too.
Also remember to check your tax statements for charitable donations. This year, you don’t have to itemize to get a tax benefit for your charity.
If any or all of these tax moves apply to your filing situation, they shouldn’t take up too much time. Set aside an hour to carefully assess your tax situation and proceed accordingly!
If you would like to make an appointment with one of our tax prep experts, please use this link. Our tax experts can help you maximize your refund or pay the lowest possible amount in taxes — legally!