Does tax season always seem to sneak up on you? Not to worry, we have you covered with these tips to help you get organized and ready to file your taxes. Remember that, if you’re expecting a refund, the earlier you file the sooner you’ll get that refund.
What’s different this year?
First, let’s take a look at some of the changes you should be aware of for your 2021 tax returns.
- The deadline to file your taxes has returned to April 15th after previous extensions during the pandemic.
- The gift tax exemption is now $16,000 for individuals and $32,000 for married couples.
- The estate tax exemption increased to $12.06 million for individuals and $24.12 million for married couples.
- Tax brackets have increased slightly.
- Families that qualify for the Child Tax Credit received half the total credit amount in six monthly payments last year. You’ll claim the other half when you file your 2021 income tax return.
Organize your documentation
Ready to get started? First, gather the documents you need to file your taxes such as:
- W-2: Earnings Summary for Employees
- 1099: There are several types of 1099 forms to report income such as dividends, interest, gains and losses on securities transactions, Social Security benefits, and compensation paid to independent contractors.
- 1098: Statement of mortgage interest paid.
- W-2G: Gambling winnings.
You may want to collect your tax paperwork in a folder and secure these documents in a fireproof safe or locked filing cabinet.
If you’re divorced or separated…
The IRS website states that “Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony or separate maintenance payments for federal tax purposes. Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income (taxable alimony or separate maintenance).”
Update your filing status
Has your family situation changed in the past year? For example, did you get married or divorced? Have a baby? Take a minute to change your filing status as needed. You may also want to change your tax withholding with your employer (Form W-4). You should also consider whether your filing status will change during the coming year, such as if you have a baby on the way or if you are planning to get married.
Hire a tax professional or use tax software
If you have the means to hire a tax professional to manage your taxes, this is the simplest route as you will just need to provide them with the necessary documentation and they will take care of the rest. However, if you would like to file them yourself, there are a number of programs available to you for this purpose including a free tax filing service from the IRS for eligible taxpayers.
Maximize your retirement contributions
As you review your tax return, consider increasing your contributions to a tax-advantaged retirement account such as a 401(k) or Individual Retirement Account (IRA). The more pre-tax income you put into your retirement savings, the less your overall taxable income and tax bill will be. Just be aware of the current annual contribution limits on your type of account. While traditional IRAs, like 401(k)s don’t have an income limit, Roth IRAs do have income limits that determine whether you can contribute up to the max for the year, a reduced amount, or nothing.
Update your beneficiaries
Tax season is a great time to review your beneficiary designations. It may not seem like a big deal right now, but down the line your planning around beneficiary designation can help reduce the tax bill for your heirs and beneficiaries after you’re gone.
Be aware of tax scams
Tax season is an opportunity for scammers to commit fraud in a variety of forms. However, tax scams can occur any time of year, so be on the lookout for emails, calls, or texts claiming to be from the IRS. The IRS never emails taxpayers, rarely reaches out by phone, and initiates any type of communication with letters first. Scammers often make offers that are too good to be true, such as an exorbitant high or fast refund, or they try to pressure and scare you by threatening arrest or deportation. If in doubt, call the IRS directly from the customer service number on their website to find out if there’s really something they need to contact you about.
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The information provided is not intended to constitute tax or legal advice. This information may have changed or may be applied differently in certain circumstances. Confer with your personal accountant, financial advisor or attorney to discuss your situation.