Last month, we told you about several steps to consider that can improve your bottom line when filing your 2020 income taxes this year, including nine pandemic tax tips to think about during the ongoing coronavirus. You have five weeks remaining to do your research and still meet the April 15 tax-filing deadline, but that doesn’t mean you should wait until the last minute.
There are two big benefits to filing early, says The Motley Fool, a multimedia company that provides financial advice on stocks, investing and personal finance:
Get your money sooner.
An estimated 80 percent of tax filers get a refund each year, according to CNN, and we’re not talking about small change. Last year, the typical refund was $2,476. “If you have outstanding bills to pay, a vacation you’re looking to fund, or just a general desire to get your hands on the cash that’s rightfully yours, then filing early is the best way to do just that.”
Avoid tax fraud.
Criminals steal millions of dollars each year using stolen social security numbers to file fraudulent tax returns and claim the refunds. Many victims don’t even realize what happened until the IRS rejects their legitimate refund. Protect yourself by filing as soon as possible. Once the IRS accepts your return and you have your documentation in hand, it is impossible for scammers to file another tax return in your name.
Now that we’ve motivated you to get your tax return filed, make sure you carve out plenty of time! The IRS estimates it takes an average of 13 hours to gather all the paperwork, read up on pertinent tax regulations, and complete and submit a return. Here is a list of some of the more common reference materials and official documents you may need:
- Form W-2: Wages, salary, and tips from your employer.
- Form 1099-MISC: Freelance and/or contract income you may have picked up during the pandemic.
- Bank and brokerage statements.
- Rental income (proof of payments).
- Alimony received.
- Form 1099-B: Proceeds on the sale of stocks and/or bonds.
- Form 1099-DIV: Dividend and distribution income.
- Form 1099-INT: Interest income on bonds/treasuries.
- Form 1099-R: Distributions from pensions, profit sharing, IRAs, insurance.
- Form 1099-SA: Health-care reimbursements.
- Form 1099-SSA: Social Security benefits.
- Form 1098: mortgage interest and points.
- Form 1098-E: student loan interest.
- Birth dates and Social Security numbers for all dependents you plan to claim.
- Child/dependent care costs (Form W-10, get provider’s TIN and/or EIN).
- Charitable contributions (receipt for non-cash or proof of payment for cash donations).
- Rental property expenses (proof of expenses for operating the property).
- Receipts for real estate and personal property taxes (if not included in Form 1098).
- IRA contributions.
- Form 1040-ES: Estimated taxes you already paid.
- Form 1098-T: Tuition payments used for learning credits.
- Form 8880: Retirement savings contribution credit.
But, let’s be honest. There are a lot better ways to spend 13 hours of your precious free time.
Instead, you can hire a professional to do the heavy lifting for you. The average fee for a tax professional to prepare a Form 1040 and state return with no itemized deductions is $188. Itemizing deductions can bump up that average by as much as $294.
Even better, here are several free and simple options to help you file on your own if your tax return is relatively simple (meaning one or more W-2 forms, some savings account interest and/or the standard deduction):
- The IRS’ Free File tool – Available to people whose adjusted gross income (AGI)is $72,000 or less.
- Credit Karma Tax – A free filing service with a 24-hour live chat and no income limit. However, the company does acknowledge using your information to send offers from their partners; something to keep in mind before signing up.
- H&R Block More Zero – Also free with a live chat option.
- TurboTax Absolute Zero and TaxAct Free – These free-file software options are usually eligible to anyone filing a simple Form 1040 tax return and who don’t plan to itemize their deductions. Income and age restrictions may apply.
- AARP Foundation Tax-Aide – Free in-person tax filing help for anyone, regardless of age or AARP membership status, at more than 5,000 locations nationwide in neighborhood libraries, malls, banks, community centers and senior centers.
Wondering what to do with your tax refund? Some of the more common choices are paying off credit card debt; making a big-ticket purchase, such as buying a new car; or paying down a mortgage or other loan. For all of these options, AutoPayPlus can make your tax return work even harder. To learn how, click here.
For more money insights and tips to pay off debt faster, click here and go to the bottom of the page to subscribe to our blog.