Your 2020 taxes are kind of like that sweatshirt you still have from your toxic ex: It’s one last reminder of a time in your life you’d rather forget and it’s going to require a return before you can totally move on.
Looking to get your taxes over with (without missing out on your biggest refund possible)? We asked three tax pros for their top tips to make the process a little easier.
Do you need to file a tax return for 2020?
If you made more than $12,400 in 2020, you probably have to file a tax return, but not everybody does.
Wondering where you fall? You can use the IRS’ Interactive Tax Assistant to find out for sure.
FYI: The deadline to file your 2020 taxes is May 17, 2021. (Thanks IRS for the extension again this year.)
Taxes aren’t the time to procrastinate. Rushing through the process could lead to correcting mistakes later on.
“It can be a good idea to start early and complete the return in stages,” says Brandon Berquist, CPA. “[This] can be less stressful as well as give you the opportunity to review the return multiple times with a fresh brain.”
Logan Murray, CFP, suggests keeping all of your tax-related docs together (like in a folder on Google Drive) to stay organized.
“Dump any tax document you receive in there as soon as you receive it to have everything in one place,” Murray says. “You can even take a picture with your phone and upload it right there if you get it in the mail.”
Who do you owe?
“Paying your taxes” can involve filing returns with a few different places.
- Federal taxes. Taxes you pay to the U.S. Federal Government. They’re used for major national programs like the military and social security.
- State taxes. If your state charges tax on the income you made in 2020, you’ll need to file a state tax return. These taxes go toward state-wide needs like libraries and roads.
- Local taxes. You may have to pay local income tax, but it depends on where you live. Find out by visiting your state’s Department of Revenue website.
You don’t need to be good at math to do your own taxes. There are plenty of online filing options that walk you through the process with automated prompts.
Some online tools even let you upload a photo of your tax docs and their program will autofill the numbers for you. All you need to do is double check that everything is filled correctly.
If you made $72,000 or less in 2020, you can use the IRS’ Free File tool to file your federal tax return for free. (You might even be able to file your state return for free, too).
Feeling overwhelmed? You may want to work with a professional. “A CPA can not only take the preparation off your shoulders” says Berquist. “[they can] potentially give you some planning insights for the future.”
Whether you have a complicated situation right now, a side hustle, or you need advice on money moves you’re planning to make, a tax pro could make a big difference.
According to the National Society of Accountants, the average cost of hiring a professional to prep and file a basic tax return is $176. It goes up to $273 if you choose to itemize, and to $457 if you also have personal business income.
That’s more expensive than the typical automated service, but you’ll get personalized recommendations that could help you save even more moolah.
Just need a little bit of help along the way? Some services offer a kind of hybrid option (for an extra fee.) TurboTax Live gives you access to their tax experts that can answer your questions in real time while you prepare your own taxes.
“Due to the CARES Act, all individuals can now deduct up to $300 in charitable contributions made in 2020,” explains Murray. “Charitable deductions are typically only available for those who itemize deductions, but this year are available to anybody.”
FYI: The CARES Act was created in response to the COVID-19 pandemic. One of the ways it provides economic relief is through temporary tax changes.
What’s a deduction?
A tax deduction lowers the amount of taxable income you had for the year. That helps to lower the amount of tax you owe.
There are two ways that deductions work.
Standard deduction: A set amount that depends on how you file. (In 2020, the standard deduction for folks filing by themselves is $12,400.)
Itemized deductions: Instead of taking the standard deduction, you can choose to claim individual deductions. This option makes sense if all of your deductions add up to more than the standard one. (Common itemized deductions include mortgage interest, personal property taxes, and student loan interest paid.)
For example, if you made $30,000 last year and paid $500 in student loan interest, you’d be better off taking the standard deduction of $12,400. Your taxable income would be $17,600.
Did you qualify for the stimulus checks last year? Two Economic Impact Payments (aka stimulus checks) were actually designed as 2020 tax credits that were given ahead of time.
That means if you did get these payments, they won’t be taxed like your regular income. It also means that filing your 2020 tax return can help you collect any money that you qualified for but didn’t receive last year.
FYI: Unlike a tax deduction, a tax credit is an amount that gets subtracted from your total tax bill.
“If you received unemployment last year, that is taxable income that needs to be reported on your tax return.” says Lauren Anastasio, CFP at SoFi. “The extra $600 that you may have received through July 2020? Also taxable.”
You should already have a form (the 1099-G) with a record of your income for 2020. It will also list how much of that income was withheld by the government. Remember to include these totals on your 2020 tax return to avoid penalties later on.
What if you need more time to file your 2020 taxes?
You can file for an extension to your 2020 taxes if you need it. You’ll still have to complete this by May 17, but it can give you until October 15 to file your tax return.
FYI: This extends the deadline to file your taxes, not your deadline to pay them. Any money you owe after May 17 can be charged interest once you do file.
How does that work? You’ll need to estimate the amount you owe on your taxes and pay before May 17. If you’re due a tax refund, you won’t be able to get it until you file your return.
Keep these tips from tax pros in mind when you’re filing your 2020 taxes:
- Start the process ASAP.
- Organize your docs.
- Take advantage of online software.
- Work with a tax pro.
- Record your nonprofit donations.
- Know how much you got from the stimulus checks.
- Understand your unemployment.