As we are all settling into our new (and hopefully temporary) normal, we are realizing that the show must still go on. While it would be lovely to get to skip right over tax season this year, unfortunately there isn’t anything on the horizon indicating that will be an option. However, there are some noteworthy changes to tax season. So, we need to start thinking about organizing for taxes, if you haven’t already done so.
Organizing taxes can be a daunting task, but it doesn’t have to be overwhelming. Therefore, let’s streamline this process so that you can feel better about tax season this year.
2020 Tax Deadline
Now, under normal circumstances, the tax deadline is April 15 of each year. However, if the deadline is not on April 15, there are typically only two things that warrant a change:
- if April 15 falls on a Saturday or Sunday
- if April 15 falls on a holiday
In either of those cases, the IRS bumps the deadline to the following business day.
Not Your Typical Year while Organizing Taxes
Obviously, this year is quite different from most years. Clearly, the coronavirus epidemic has turned the world upside-down. For example, schools are closed, non-essential businesses have shut their doors, and high-need businesses are working overtime. You may be realizing that organizing for taxes is a little more challenging, as well. Especially if you are missing information or a document from a company that is temporarily closed.
Therefore, the IRS, recognizing the need to be flexible, is following suit. Consequently, they have extended the tax deadline by three months. Thus, the 2020 tax deadline is now July 15. So, you can breathe easier knowing that you have until then to file your 2019 taxes. Additionally, the IRS is permitting taxpayers to defer their federal income tax payments that are normally due on April 15. Like the tax filing deadline, the tax payments are also due on July 15, and will not be subject to penalties or interest due to deferment.
Filing an Extension
Thus, lucky for anyone who needs to defer tax filing and payment, the process is simple. In fact, the IRS says it is not necessary to file any additional forms or to call them to request an extension. Rather, they point taxpayers to one of two forms when organizing taxes:
- Form 4868 – Individuals can use this form to file for an extension. They can get the form from their tax professional, through tax software, or by clicking the IRS.gov Free File link.
- Form 7004 – Business will use this form to file for an extension.
Nevertheless, don’t delay. The IRS is encouraging taxpayers to file as soon as they are able. For people who are due a refund, those are being issued within approximately 21 days. Therefore, many people could benefit from filing taxes before the deadline.
Getting Ready for 2020 Tax Season
As with any matter of importance, it’s best to start your with a plan.
For starters, pick a day to simply get organized, and block time on your schedule. Stick to that time and date, and don’t put it off. Then, jot down a rough outline of the items you need to gather. Organizing for taxes can also include annotating where you keep certain items, if they aren’t all kept in the same file. Be sure to check your physical files, your hard drive, and your online files, as well. Finally, schedule time to send your tax items to your professional.
Also, keep in mind that if you were planning a face-to-face meeting, normal operating procedures might have changed, given the circumstances. So, be ready to either get in a queue for drop off, or—better yet— plan to send the information electronically.
How to Best Organize Your Tax Information
As far as your outline, there are some things you want to make sure to get on your checklist. The categories are as follows:
- Personal Information
Now, each category has a list of items you will want to include, if they apply to you.
Of course you will need to make sure your contact information is current. Still, there are a few other documents you will need as well to fulfil the personal information piece.
- A copy of the previous year’s taxes
- Social security numbers for you the taxpayer, your spouse, and your eligible dependents
So, this is where you disclose any funds you have received over the course of the previous year.
- W-2 – This is the form you will receive if you are an employee of an employee of a company. Employers are required to provide this form to employees, either through standard mail or electronically, by January 31st of each year.
- 1099-MISC/1099-K/1099-INT/1099-DIV – The type of income you receive, that is not from your employer, will determine which 1099 form you need to use. These are either miscellaneous, third-party payments from sales, interest, or dividends.
Organizing for taxes will likely uncover a nice chunk of expenses that you can include as deductions. Some common deductions include the following:
- Retirement account contributions
- Educational expenses
- Classroom expenses
- Medical bills (If you’ve been paying with an FSA account, remember that you have already received the tax break for those items. So, you may not double-dip and submit those amounts when you file taxes.)
- Mortgage interest
- Property taxes
- Charitable donations
- State and local taxes (You will include these, if they are applicable for your area.)
Tax credits are powerful because they cut what you may owe on a dollar-for-dollar basis.
- Student loan interest
- Child Tax Credit
- Retirement savings contributions
As you finalize organizing taxes, be sure to include payments. This is where you will show one of the following:
- Tax payments – These are the tax payments you’ve made each pay period. You will be able to see them on your paystub, and then totaled up on your W-2.
- Estimated tax payments – If you are someone who has not had taxes withheld on a paycheck, this is where you will use your estimations to be ready to write a check for what you should owe.
Although this is a long list of items you will need to include while organizing taxes, you still may be eligible for other deductions or credits. So, be sure to make time for a thorough chat with your tax professional.
Easing the Stress of Taxes
While this task might seem especially daunting this year because of the unexpected circumstances, try to keep things in perspective. Remember that you do this each year, and you get through it. Therefore, you will get through this year as well.
So, if it helps, consider giving yourself a reward after organizing for taxes. It can be something as simple as a glass of wine to wind down, or a pint of Ben & Jerry’s to feed that sugar craving. Lord knows you can’t go out for a cocktail with friends, but wine or Ben & Jerry’s friendship can be a real pick-me-up in low times.
Proceed with Caution
While you might be breathing a sigh of relief knowing that the IRS extended the tax deadline for 2020 to July 15, proceed with caution. If at all possible, don’t put off organizing for taxes. If you do, you could quickly find yourself in a bind.
One more thing to remember as you organize, even as we prepare to file our taxes, is social distancing. If at all possible, submit your records and file your taxes electronically. This does not mean you need to file taxes yourself, but you’ll want to find a reputable tax preparer who is able to handle everything virtually. Also, any conversations you need to have should be done via email or over the phone. This will help minimize face-to-face interactions, which could potentially continue the spread of the virus. Obviously, that is the one thing we are all trying to avoid that at all cost.