Your mind may be on preparing for the holidays in the midst of the coronavirus pandemic, but the Internal Revenue Service (IRS) is focusing on your 2020 tax return.
While you won’t have to file your return until April 15, there are some good reasons to get it done early.
Scammers continue to file fake returns in other taxpayers’ names, hoping to swoop in and claim a hefty refund. But if you file your return early, it leaves less time for the fraudsters to try their tricks.
Also, if you’re going to be due a refund, the sooner you get your money, the better.
Here are five things you can do right now to prepare.
1. Check your withholding
There aren’t many pay periods left in 2020, but you still have time to adjust the amount of tax that’s taken out of your salary.
You can use the IRS’ Tax Withholding Estimator to ballpark whether your withholding is about right.
If you think you will owe a lot on April 15, you can still have more taken from your paychecks for the rest of the year or if you have some cash saved, you can make an estimated tax payment. The final estimate tax payment for 2020 is due on Jan. 15, 2021.
If you received unemployment benefits, remember that the New Jersey Labor Department didn’t withhold federal taxes from the $600 bonus payments approved under the CARES Act. That could mean you will owe more on April 15, so be sure to run the numbers to be prepared.
2. Make an IRA contribution
If you’re eligible to make a deductible IRA contribution, consider funding the account.
If you don’t have a workplace retirement account, you can deduct the maximum $6,000 contribution for 2020, plus a $1,000 catch up contribution for those age 50 and over.
But if you do have a workplace retirement account, the deductions are different.
If you are single or head of household and have modified adjusted gross income (MAGI) of less than $65,000, you can deduct the full contribution, while you can take a partial deduction if MAGI is between $65,000 and $75,000. Earners over $75,000 cannot take the deduction.
For those who are married and filing a joint tax return, you can take the full deduction if your MAGI is under $104,000, and you can take a partial deduction if your MAGI is between $104,000 and $124,000. Higher earners can’t take the deduction.
3. Get organized
Whether it’s a file folder or a shoe box, set aside a place to keep important tax documents. These include documents that will come to you after January, such as W-2 and 1099 forms. You should also hold onto Form 1095-A from the health insurance marketplace and Notice 1444, which came after you received your stimulus payment.
If you received a federal income tax refund for 2019, it may have come much later than usual because of IRS delays related to the coronavirus. If so, you may have been paid interest.
“Interest payments are taxable and must be reported on 2020 federal income tax returns,” the IRS said. “In January 2021, the IRS will send a Form 1099-INT, Interest Income to anyone who received interest totaling at least $10.”
Add to your records any proof of business-related expenses and charitable contributions so you won’t have to track it all down last minute.
4. Your stimulus payment
If you didn’t receive a stimulus payment, you’ll be able to claim it on your 2020 tax return with the “Recovery Rebate Credit” if you meet the eligibility requirements.
This would include people who didn’t receive any payment, those who are single but received a payment of less than $1,200, married couples who filed jointly for 2018 or 2019 and received less than $2,400 and anyone who didn’t receive $500 for each of their qualifying children.
5. Make sure your name and address is correct
If you have moved, be sure to notify the IRS of address changes. See the different ways you can contact the IRS on its website.
If you changed your name, you should notify the Social Security Administration of any legal name changes to avoid delays in tax return processing, the IRS said. Here’s how you can contact Social Security.
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Karin Price Mueller may be reached at [email protected].