It’s not quite the end of 2020 and tax season may seem like quite a way off. However, there are things you can do now to prepare to file taxes in 2021. Taking an hour or two when your business has some year-end down time may help filing next year that much easier. Here are four things the Internal Revenue Service suggests you do now to making filing taxes in 2021 an easy process.
Gather your tax records
Don’t wait until the day you sit down to file to prepare your documents. Start gathering your information now so that everything will be organized later. Make sure you include your W-2 forms from employers, 1099 forms from banks and other payers (including any income you earned as an independent contractor), and other documents include mileage and receipts. Remember that most income is taxable, which includes unemployment, refund interest, virtual currencies, and rental property income. Having everything organized may also help you discover tax credits you may not have remembered.
Verify your personal information and ITIN
Use this time to verify your contact information that the IRS has on file. For example, if you moved this year, make sure your new address is updated. You should also notify the Social Security Administration of any legal name change (marriage or divorce). You also want to check your Individual Tax Identification Number (ITIN) to assure it has not expired before you file your tax return.
Make sure you’ve withheld enough tax
Use the Tax Withholding Estimator to help you determine the right amount of tax to have withheld from your paycheck. You may find you need to adjust your withholding and submit a new Form W-4 to your employer. It’s best to do that now rather than wait until you’re into 2021. You may also consider making estimated tax payments so that you are not saddled with money owed to the IRS in April.
Determine what help you’ll need in light of COVID-19
With social distancing and precautions still in place for Coronavirus, start thinking about what you’ll need to complete your taxes next year. The IRS offers many online tools that will allow you to get help and social distance. Check out their online tools to help you get the information you need, and they’re easy-to-use and available 24 hours a day. Beginning in January 2021, almost everyone can file electronically for free on IRS.gov or with the IRS2Go app. The software does all the work of finding deductions, credits and exemptions for you. It‘s free for those who earned $72,000 or less in 2020.
Don’t wait until just weeks before April 15, 2021 to prepare your tax information for 2020. Use the year-end downtime to gather records, update your contact details and review the IRS website for necessary information. Doing this now will make 2021 tax season a little easier.
Allison Soares is a partner and tax attorney at Vanst Law. Before starting her own practice, Soares was a partner at a tax law firm where she honed her skills handling a wide variety of tax and employment-related cases. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
