Tips for a Less Tax(-ing) Season

0

2020 TaxesSee what I did there? A little accounting humor to kick this post off. I graduated with a degree in accounting and passed the CPA Exam in 1992. After one day in the audit department, I transferred to tax. After that, I practiced public accounting for three years with KPMG. Then, I accepted a job with a client. Until I “retired” in 2002, I consulted for previous employers and prepped individual taxes out of my home. Since retirement, I maintained my license via on-line CPE courses and continued to prepare our personal tax returns. I also prepped returns for local non-profits.

Tax season can be quite taxing for the most seasoned professional, but especially for DIYers.

In light of the upcoming May 17, 2021 (extended from April 15th), Individual Income Tax filing deadline, I want to share some of my personal tips. Whether you prepare your own income tax return or pay a professional, document organization makes all the difference. Maintain dedicated file folders throughout the year, both manually and digitally. Drop hard copies of receipts, in-kind donations, IRS correspondence into the manual folder. Store emails with tax consequences or receipts in the digital folder until you are ready for them.

Make plans for short-term and long-term document storage.

I purchase an accordion file folder for the previous year’s tax documentation in January of each year. Sections include correspondence, itemized deductions, interest and dividends, sales proceeds, K-1s, and tax returns. Place the documents from the year into their section and wait for others to arrive. Once your annual credit card statements arrive, please review them carefully. During this review, highlight any deductible expenses. Also, peruse your check register for deductible items and highlight them for future reference. Take pictures or scan your receipts; they fade over time or can be lost in fire or storms. The IRS refuses faded receipts they cannot read. Digital documents may be stored in applications like DropBox or Google Drive.

Watch your mail for tax-related documents.

Every year, people toss tax-related documents that get mixed up with their junk mail.  Keep an eye on your mailbox and your inbox for W-2s, 1099s, brokerage statements, and tax organizers from your C.P.A. You will save yourself or your preparer precious time if you do not have to track documents down near a deadline.

Make sure to fund your retirement accounts.

If you have not already funded your retirement accounts, April 15, 2021, is the deadline for funding your traditional or Roth IRAs.

Brush up on 2020 tax law changes.

  • Stimulus checks are not taxable but must be recorded on your 2020 tax return. Make sure to include the correct amount, or your refund may be delayed.
  • The deduction phase-outs for both Traditional and Roth IRAs are higher in 2020.
  • Nonitemizers can deduct $300 in charitable CASH contributions for 2020 only as an “above-the-line” deduction.
  • Special “sick-leave” provisions apply for self-employed persons who were unable to work due to COVID, and one may be eligible for self-employment tax credits.
  • The standard mileage rate fell from .58/mile to .575/mile in 2020.
  • Interest received from the federal government on income tax refunds is taxable interest.

Do not procrastinate!

Whether you DIY or hire a preparer, be timely. Set an internal deadline well in advance of the IRS imposed deadline. A timely completion allows a period for review and collection of any additional documents needed. Also, it provides time to secure funds for payment. One might need to move money or liquidate funds for tax payment.

Finish strong!

Once your return is completed, make sure the appropriate documents (W-2, payment voucher, check) are attached. Mail your returns with a tracking service and proof of receipt. Yes, tax returns do get lost in the mail. Without proof, one is considered an untimely filer, and there’s a penalty for that. Keep a signed copy; you might need it later. Retain your filed returns for seven years. When the appropriate time lapses, shred, do not toss.

Now get to prepping!

I want to give a shout-out to Kirsten Maddox Burton, CPA and fellow Pensacola Mom Collective contributor, for checking behind this “retired” CPA to ensure I shared accurate information with you all. Thanks, Kirsten!

LEAVE A REPLY

Please enter your comment!
Please enter your name here