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2020 tax return filing checklist and pre-filing tips

Checklist_study-in-usa

Tax Season 2021 is finally here! The Internal Revenue Service has started accepting tax returns and, more importantly, is now processing the filings as of today, Friday, Feb. 12.

Millions have already filed. Most of them used tax software, either on their own or through the Free File program, which the IRS and its tax prep partners opened up a month ago. Those 1040 forms have been on hold. Now they've been transmitted to the IRS.

Others, however, still have some work to do.

We're waiting for some tax statements to straggle in, either to our snail mail or email boxes. Or we have a few more complicated issues to resolve. Or we're just flat-out procrastinators. And yes, in prior and this tax season, the hubby and I have been in one, two or all three of those categories!

It's OK to file as soon as possible, if you're ready. And it's just as OK to wait, if you're not ready. It's always better to file a correct Form 1040 and be done with it, rather than discover something later that impacted, for good or ill, your filing.

So regardless of where you are in the filing process, here's a checklist of forms and documents you'll need to complete your taxes, as well as a look at tax situations you need to consider before filing.

Start with last year: Pull out your 2019 tax return. It's probably handy since, due to COVID-19 pandemic delays, it wasn't due until July 15 and millions took even longer, extending into October, to get a handle on some coronavirus-related changes.

The IRS made a few changes to the 2020 tax year Form 1040, but the basics are the same. If your life is substantially same, COVID-19 notwithstanding, a look at your prior tax year filing is a good template for this year.

You'll also want to dig out that copy of last year's state tax filing if you live in a state that collects an income tax.

Plus, these documents will have some data — for example, Social Security numbers (yours, your spouse's and any dependents' identification digits) and bank account info if you want your refund directly deposited — that you'll need again this year.

Gather perennial filing documents: The world, tax and otherwise, largely has gone digital. That should help you in the gathering of the tax and financial documents that you'll need to fill out your taxes.

Most third-party tax reporters — these are the folks that let you and the IRS know how much money you made at your job, either full-time or as a freelancer, and how much unearned income you got from investments — were supposed to get you this relevant income info by Feb. 1, since the usual Jan. 31 due date was on a Sunday this year.

By now you should have these documents. If you haven't double-checked them for accuracy, do that before filing. In addition to making sure your name, address and tax identity number (that's usually your Social Security number, but it could be an Individual Taxpayer Identification Number, or ITIN, for some filers), make sure the income amounts on the form are correct. The IRS gets copies, and discrepancies between what you file and what's on these docs are guaranteed to get you additional correspondence from the IRS.

My earlier post on tax statements has more details on these documents, but here are some common and key ones you could need to accurately fill out your 1040:

  • W-2 forms: In addition to the main W-2 with your wage and withholding info, there are assorted other versions. You'll might have a W-2G for gambling winnings if your Kansas City Chiefs bets last year paid off better than in 2021.

    1099 W2 paper forms_cropped

  • Various 1099s with sundry income amounts. These include 1099-R for retirement distributions; 1099-INT for interest earned; 1099-DIV for investment dividends; 1099-B for brokerage sales; 1099-G for state tax refunds or other government payments. Form 1099-G also is sent in connection with unemployment benefits, which millions of folks got for the first time last year when COVID-19 led to the loss of their jobs.

    And new this filing season is Form 1099-NEC. This went to contractors or others who in 2020 got nonemployee compensation (hence the NEC notation) of $600 or more. It replaces the 1099-MISC form freelancers used to get.

  • Some 1098s, such as 1098-T that students will need to calculate education tax credit eligibility; 1098-E with potentially deductible student loan interest payment amounts; or the plain old Form 1098 for homeowners with mortgage interest, loan points, property tax payments and, in some cases, payments made toward private mortgage insurance (PMI) real estate taxes.

Don't forget more specialized filing material: Every filer's tax situation is unique. That's why you could need tax info in addition to the usual forms that applies to your particular financial circumstances and tax-filing needs.

  • Records of estimated tax payments you made for both your federal and state taxes.
  • The amount of tips or other gratuities you received as part of your job. You should have been keeping records of these amounts, especially if you've had to report them each month (as noted in the ol' blog's tax moves column there to the right) to your employer.
  • Any unemployment benefits you received. Yes, I mentioned this in the statements section earlier, but since it's often a surprise that unemployment benefits are taxable, it's worth a second reminder here.
  • Did you move for a job last year? Sorry, you probably aren't going to be able to count on Uncle Sam to help cover your relocation costs. This above-the-line deduction is still around, but tax reform made the tax break available only to members of the Armed Forces.
  • Distributions from retirement accounts, depending on the type of plan you have, could be taxable. Double check income statements for your workplace retirement and/or IRA withdrawals, as well as your Social Security benefits (some of which could be taxed) if you're now getting those payments.

    National-grandparents-day-facetiming-the-family-1200x834

  • If you're still contributing to your retirement plan, is any of it deductible? Have your statement of these amounts to help you decide. Don't forget about plans you've set up if you're self-employed, whether as your full-time work or as gig work. These contributions also can be used to reduce your tax bill, so have those statements handy, too.
  • Are you divorced? When that split was official could affect your taxes. For divorces and separation agreements finalized in 2019 or later, alimony payments are not deductible for the payer or counted as taxable income to the recipient. However, if your divorce was finalized in 2018 or earlier, you're grandfathered into the old system: alimony is still deductible, again as an above-the-line deduction, to the payer and still counts as income to the ex-spouse getting the payments. So be sure you have the paperwork showing the year of your marital split and, as long as they haven't made any modifications to that prior dissolution agreement, the amount paid/received for tax deduction/payment purposes.

Getting to know the tax you: OK, you have the paperwork, statements and official tax forms or IRS-approved substitutes.

Don't, however, start working on your taxes just yet. You also need to take a look at your life last year and answer a few questions that could have tax implications. They include:

Which deduction method do you plan to use, claiming the standard amount for your filing status or itemizing? You're not locked into the deduction choice you made last year. You can change it each year, depending on your most recent financial and tax circumstances.

Do you have any unresolved state or IRS tax issues?

Did you get married or divorced last year? This will affect, among other things, your filing status.

Did you have a child last year? Was that new family addition adopted or the adoption process begun last year? Again, among many other child-related tax matters, this could affect your filing status.

Did you pay for a dependent child's (or another dependent's) care so you could go to work?

Did you receive any assistance from your employer to pay for education expenses, child care costs or adoption expenses?

Are you supporting anyone not living with you? Helping out aging parents is becoming more common for many.

Are you providing the majority of financial support for someone who is living with you?

Did you or any member of your household pay any college costs?

Did you contribute to charity? If it was more $300 or less, your donation can get you a charitable tax deduction directly on your 2020 Form 1040 without having to itemize.

Did you hire any household help?

Did you make any major improvements to your home?

Did you sell, refinance or face any foreclosure transactions on your personal residence?

Do you own a second residence or any other real estate? If so, did you rent it out last year? The length of those rental periods could affect your tax bill.

How old are you? And how hard is it for you to read this? Your answers could affect the amount of standard deduction you can claim or even the form you file, notably Form 1040-SR.

Did you retire? If you're collecting a private pension payout, you should get a Form 1099-R cited earlier. If you're also getting Social Security benefits, be on the lookout for your 1099-SSA. As noted earlier, some of your government retirement money could be taxable.

Were you a resident of, or did you have income in, more than one state during the year?

Did you have money in a foreign account?

Did you make any large purchases, such as a vehicle?

Did you have any nonresidential debt that was canceled? It generally is counted as taxable income.

Did you have health care coverage? Did you buy your medical insurance through the marketplace, either the federal one or your state's marketplace?

Did you serve in the military? If so, did you receive combat pay? It could affect your claiming of the Earned Income Tax Credit (EITC).

And speaking of the EITC, did your earnings drop because of COVID-19 job cuts? You might be able to get more from this refundable tax credit by using your 2019 earnings instead of your 2020 pay amounts? That's an option this filing season.

I didn't mean to pry, but the tax fact is that that there's really never too much information to take into account when it comes to filling out your annual return. Or planning for next year's taxes, but that's another post.

Schedule A specific information: If you decided that itemizing still works for you despite the larger standard deduction amounts, you'll need a bit more filing documentation to complete your Schedule A.

This generally is the case for folks who have major medical expenses. In order to get a tax benefit from these costs, they must amount to more than 7.5 percent of your adjusted gross income (AGI), for all filers and regardless of age. Double check all your expenses against the IRS-allowable medical expenditures list.

Flu shot

This includes prescriptions, doctor office visit payments, dental care costs, hospital bills, medical insurance premiums as long as they aren't paid at work via pretax dollars, long-term care insurance premiums and the mileage to and from physicians' offices. Also, as in all things tax, make sure you have the records to back up your claims. You don't have to submit those documents, but you'll want then if the IRS questions your claims.

Many home-related costs also are deductible on Schedule A, as noted in the earlier discussion of the statements that detail them.

Charitable gifts beyond the $300 allowed directly on Form 1040 can help increase your itemized deduction amount. Again, just be sure you have records and that your donations go to IRS-approved 501(c)(3) groups.

If you sustained losses due to a federally declared disaster last year and decided to wait to claim them on your 2020 return, have all that related documentation handy. In addition to the records of the losses and expenses not paid by insurance toward recovery, you'll also have to include the Federal Emergency Management Agency (FEMA) number and the location of property against which the tax claim is being made.

Finally, there's the Schedule A section for reporting specific other deductions. This applies to any gambling losses and includes, among other things, the cost of losing bingo, lottery and raffle tickets, horse and dog racing slips and the money you dropped at the poker table or roulette wheel at your favorite casino.

Obviously, you'll need to keep good track of these expenditures. Remember, though, that your losses can only offset the amount of winnings you got during the tax year, some of which were on the W-2G form mentioned earlier. You can't claim losses to produce a loss on your taxes.

And note that this section does not include those myriad expenses that used to be classified before the 2017 tax reform law change as miscellaneous expenses. Those write-offs, generally for unreimbursed work-related expenses (either spent on the job you have or in looking for a new one), are gone.

Ready, set, wait to file: Whew! That's a lot of pre-filing stuff to consider regardless of whether you use Schedule A or take the easier standard deduction route.

It's also a lot of documentation to gather or track down, regardless of whether you plan to file your taxes yourself or deliver the material to your tax preparer.

But even if you think you have everything, think again.

Whoa. Hold on. Brett Eldredge via Giphyvia Giphy

Go over your taxes and tax situation again. Dig out all those records. The effort could definitely be worth it. Getting all the documents and data you need beforehand will make the actual form filing easier. And it could ensure that you don't miss any tax breaks.

Remember, too, that just because today is the start of the annual tax filing season, you don't have to file today. Or next week or even next month. You have until April 15.

It's not a race, even if you are expecting a refund. The key is to file your return when you can do so accurately and completely. That will save you from facing follow-up questions by the IRS and potentially having to file an amended return.

And let's be honest. No one wants to deal with the IRS more than once in a year!

Did I overlook any tax documents or filing situations to consider before you sit down, whether by yourself or with your tax pro, to fill out your 1040? If so, please let me know in the comments section below.

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George Thomas

Checking out the current tax situation is very important before filing your taxes. Thanks for sharing such a useful information with us. Tax filing help people to pay their taxes on time without any issue.

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