How to prepare for tax season
April is synonymous with many things. Many people get their first glimpse of spring blooms in April, while families of faith look forward to gathering for Passover and Easter. Sports fans may welcome the return of professional baseball in April, while scholastic athletes may associate April with the return of spring sports. Though each of those things tends to be welcomed with open arms, one day in mid-April may not be greeted so warmly.
Each year in the United States, April 15 marks the official deadline for taxpayers to file their tax returns. Taxpayers in the United States must file their returns by this day or face penalties. Though the filing deadline may be in mid-April, it’s wise for taxpayers to begin preparing to submit their returns much earlier than that. For those who have not done so in the first two months of the year, March is a great time to begin preparations to ensure returns are accurate and filed on time.
The Internal Revenue Service offers the following advice to taxpayers who want to get a head start on their returns so they make sure they file on time in 2021.
• Gather and organize your records. Many people rely on a professional to work on their returns, and April is such professionals’ busiest time of year. As a result, it’s imperative that taxpayers have all their necessary documents ready prior to their appointments. Any delays could force appointments to be rescheduled, and there’s no guarantee tax professionals will have any open dates on their calendar as the filing deadline draws closer. The IRS notes taxpayers will need their W-2s from employers, forms 1099 from banks and other payers and other income documents and records of virtual currency transactions. In addition, people who received an Economic Impact Payment in 2020 should make sure they have Notice 1444, which includes the amount of the payment and how it was received, as they will need that to file their returns. It’s also important that people who received unemployment income recognize that such income is taxable, so they will need a record of that income, especially if they did not pay taxes on it when it was received.
• Where applicable, confirm your Individual Taxpayer Identification Number has not expired. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number from the Social Security Administration. The IRS notes that all ITINs not used on a federal tax return at least once in the last three years expired on December 31, 2020. In addition, all ITINs issued prior to 2013 with middle digits of 88 expired at the end of 2020. ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99 that were assigned before 2013 and have not already been renewed also expired at the end of 2020. Visit www.irs.gov to learn more about ITINs.
• Contact your tax professional. 2020 was a complicated year, and that figures to create some unique challenges as people file their 2020 tax returns. So it pays to contact your tax preparation professional with any questions you have well in advance of April 15. That’s true for all taxpayers, but especially so for anyone who filed for unemployment, received an Economic Impact Payment or dealt with any other abnormal circumstances in 2020 that could affect their tax returns.
Taxpayers may face unique challenges as they begin to work on their 2020 tax returns. More information is available at www.irs.gov.