10 tax tips for last-minute 2020 return filers
Friday, May 14, 2021
If you're spending your weekend working on your 2020 tax return, you are not alone. Millions of people every year put off this annual tax task until the very last minute.
Tax procrastination happens even in years like this one when the deadline is later than usual. It also happens even when people are going to get a refund. I know! Go figure.
Whatever your reason for waiting, I'm not judging.
But I do want to offer some tips that could make your filing easier. That way you still could have some weekend to spend doing non-tax things.
1. Check your COVID-19 economic impact payment status.
Last year, two rounds of pandemic payments were sent to millions of Americans. If you got one or both of these payments, the good news is that the money is not taxable income.
That means, in case you forgot since it has been a while, those COVID-19 economic impact payments, or EIPs, were:
- $1,200 per eligible taxpayer plus $500 for qualifying children for the first pandemic payment, aka EIP1, issued in March 2020, and
- $600 per each eligible taxpayer and qualifying child in the second rebate, EIP2, issued in December 2020.
Ideally, you got the maximum amounts for your situation. If that's the case, then you're done as far as your tax return is concerned.
However, some folks didn't get the maximum for either or both EIPs (or any) last year because the amounts were calculated using their 2019 income that exceeded the eligibility thresholds. If that's you and you now qualify for more rebate money based on your 2020 earnings, you need to recoup it on your return. You do so by claiming the Recovery Rebate Credit (RRC).
Yes, your tax preparer or software will find this for you on Form 1040, but for all y'all super tax geeks, it's on line 30 of that form (and also on 1040-SR if you're an older taxpayer able to use this simplified return).
Here's hoping that you automatically got the maximum in both EIP rounds. But if you didn't, get that money now (or by May 17).
2. Count unemployment benefits.
The reason for the EIPs was that so many people lost income when their job hours were reduced as part of businesses' coronavirus safety protocols. Around 40 million workers lost their jobs entirely. Some additional relief came as unemployment benefits. While this money helped, it also came with a terrible tax surprise for many of the recipients. Unemployment benefits are taxable income.
To help folks who suddenly were facing bigger tax bills, a provision in the part of the American Rescue Plan Act deemed that the first $10,200 of unemployment benefits for individual taxpayers was not taxable income. That amount of tax-free unemployment goes to $20,400 where a married, jointly filing couple both received unemployment benefits in 2020.
If you got more than the tax-exempted amount for your filing status, you still will owe tax on that excess unemployment benefits amount.
3. Don't make easily avoidable mistakes.
We're all human, which means we screw up now and then. When that happens on your tax return, it could be costly. My earlier post on 12 common tax-filing errors lists some mistakes for you to avoid making on your 2020 return.
4. Don't miss out on tax breaks.
Similarly, we sometimes make mistakes of omission; that is, we overlook some tax breaks that could provide us nice savings on our returns. Not only is that infuriating, it could cost you. Again, let me refer you a prior post, the one on 12 often overlooked tax breaks. (Yeah, I'm a dozens' roll.) It includes credits and deductions for filers who itemize, as well as those who claim the standard deduction.
Also, to guard against errors and overlooked tax savings, check out this 2020 tax return filing checklist.
5. Make other special tax-saving Tax Day moves.
In addition to the general tax breaks noted in #4, there are a couple of tax-saving moves tied to contribute to an IRA for the 2020 tax year, as well as put added money into your high deductible health plan health (HDHP) savings account (HSA) for the prior tax year.
By contributing to both of these accounts, you make sure you max out their tax advantages by not missing out on a tax year. Once you make the 2020 contributions, then you can do the same for 2021. In both cases, that means your IRA and HSA will grow, tax-deferred for a traditional IRA, and tax-free for a Roth IRA and HSA.
Plus, your IRA contribution could (1) qualify you for another tax break, the Saver's Credit, and (2) provide you another, if you qualify, tax deduction that doesn't require itemizing.
For 2020, you can put up to $6,000 in an IRA, traditional or Roth. If you're age 50 or older, you're allowed to add another $1,000 each year as a catch-up contribution.
As for the HSA that covers your HDHP out-of-pocket medical expenses, you can put up to $3,550 in the medical account if you have a policy as single person, or up to $7,100 in an HSA for a family high-deductible policy.
6. Collect your 2017 refund.
You read that date right. Millions of taxpayers didn't file a 2017 tax year return back in 2018 even though they were due a refund. If you're one of them, you need to file that old 1040 by May 17 or Uncle Sam gets to keep your money. Forever.
7. Don't pique the IRS' interest in your return.
As you've probably discovered by now, there are lots of ways to save on your taxes. You don't need to be pushing those tax breaks too far or worse, coming up with new ones to try to shave a few dollars off your tax bill. If you're even remotely thinking of doing that, or you have a tax preparer that's making what sound like questionable recommendations, you need to take a minute and review my post on audit red flags.
8. Get an extension.
OK. You've realized that you just aren't going to able to finish your 2020 taxes, even if you work on it for 24 hours on both Saturday and Sunday. Then file for an extension. Sending the IRS Form 4868 will get you five more months, until Oct. 15, to finish up your tax paperwork.
9. Pay any tax you owe.
And that brings us to Tax Day move #9. An extension to file is just that. Extra time to get your tax forms to the IRS. It is not an extension to pay any tax you owe. You must pay that tax amount, or as much as you can, by May 17. If you're cash-strapped, look into an installment payment plan with the IRS. If you don't pay, the IRS will start tacking penalty and interest charges onto your tax bill.
10. File your state taxes, too.
Most Americans also must file some type of state tax return. And most of those state (and sometime local, too) tax forms usually hew to the IRS schedule, meaning your state returns likely are also due by May 17. But maybe not. Check with your state tax department about the deadline.
Remember, too, that if you can't finish your federal tax return by Monday, chances are you won't complete your state tax forms either since, in most cases, state filings are based on what you report on your federal taxes. Double check with your state about getting an extension for these filings, too.
OK. Are you ready to have a fun tax weekend? I know, it's a lot to think about, especially with just a few days left.
Hopefully, you're not too far from finishing your taxes, and these tips will get you to the final filing line on time.
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