Tax Season Prep 101
Wednesday, January 6, 2021
The hustle and bustle of the holidays are over and a new season has begun…tax season. It is never too early to start preparing to complete your 2020 tax return. Here is a list of things you can do this month to make tax time a little less stressful:
- Contribute to retirement accounts. If you haven’t funded your retirement account for 2020 yet, now is the time to do it. For a traditional or ROTH IRA the deadline to do so is April 15, 2021. For a Keogh or SEP you can get an extension to October 15, 2021. But if you want to start compounding tax free interest as quickly as possible, make those contributions now!
- Make a last-minute estimated tax payment. If you didn’t pay the IRS enough money throughout the year, you may have a hefty tax bill coming your way. You might owe some interest and penalties as well. If you make an estimated payment by January 15, you can avoid a penalty for the fourth quarter and save money. Try not to pay too much though. It’s better to owe a little money than to get a refund. The IRS doesn’t pay you any interest on money they are borrowing from you.
- Organize your records. Yes! Do it now! Good organization may not change the amount of money you have to pay, but it will certainly make the process of filing your taxes easier. Prepare a tax checklist to get all your ducks in a row. Have a tax folder or binder in which you keep all documents and receipts. Taking the time to get organized now will save you time and energy when it is time to file your taxes.
- Find the right tax forms. You can view and download tax forms on the Internal Revenue Service web site or you can have them mailed to you. The IRS can also provide you with a private web site that lists state government sites where you can pick up state forms and publications.
- Itemize your tax deductions. While it may be easier to take the standard deduction, you may save money if you itemize. Especially if you are self-employed, own a home, or live in a high tax area. It is worth the time and effort when you see how much money you can save. Itemized Deductions: A Beginner's Guide
- Decide if you need help. Avoid the panic of last minute calls to accountants by preparing in January. You will have plenty of time to determine if you are going to need help completing your taxes and won’t be scrambling for assistance as the deadline looms.
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