Preparing for the 2021 Tax Season

Usually, the last thing you want to think about at the beginning of the new year is “I should do my taxes.” But even though there’s more than four months until Tax Day, it never hurts to get a jumpstart when it comes to preparing your taxes. In addition to avoiding the stress of completing your tax return at the last minute, the extra time will help you to find all of your eligible deductions, which may lead to receiving a bigger refund.

• Gather Your Tax Records

For the majority of taxpayers, the two most common tax documents are W-2 forms and 1099 forms. W-2 forms are issued by employers and record the income you were paid, as well as the taxes that were withheld on your behalf. 1099 forms, on the other hand, reflect any other income you received. This form covers a wide range of income-earning scenarios, including account interest and dividend payments or the income earned by independent contractors (Uber drivers, for example).

You may also receive additional forms, depending on your situation. Unemployment income, virtual currencies, and student loans all generate tax forms, and it’s in your best interest to make sure that you have all of this information on hand. This will ensure that you get the full refund or credit that you are due.

• Filing Status

If you got married during 2020, you’ll need to decide whether to file jointly or separately. There are a number of reasons for either choice, so you should consult with a tax professional to decide which status will provide the most benefit to you. Similarly, parents and their older children (up to 24 years old) should discuss whether adult children will be claimed as dependents on their parents’ taxes.

• Tax Brackets and Deductions

In 2020, both the standard deduction and the marginal tax brackets increased slightly to account for inflation, although the tax rates have largely remained the same. For a single filer, the standard deduction is $12,400. For married couples filing jointly, the amount is $24,800. These changes may affect your filing status as well, so be sure to account for them.

• COVID and Taxes

The biggest question we hear is whether the stimulus payment you may have received through the CARES Act will be considered to be taxable income. The good news is that these payments are not counted as taxable income. Instead, they are being considered as a refundable tax credit, so you don’t have to worry about them on your taxes.

However, because of the impacts of COVID-19, many taxpayers will find themselves dealing with unusual tax situations. Unemployment, independent contractor earnings, and other forms of income all need to be reported to the IRS, so make sure to track down any information that you may need in regard to your income and expenses.

• File Sooner Rather Than Later

While the deadline to file your taxes this year is Thursday, April 15th, you can always e-file your taxes before that time. The IRS will likely begin accepting electronic returns sometime between January 15th and February 1st of this year.

If you’re eligible to receive a tax refund, the sooner you file your return, the sooner you’ll receive your refund. And even if you’re not receiving a refund this year, getting your taxes done sooner will help you put 2020 behind you.