Federal income tax filing season for the 2020 tax year begins on Friday, February 12th! In most years, the IRS begins accepting tax returns in late January. This year, the late December passage of the 2021 Consolidated Appropriations Act created some last-minute tax changes. IRS tax forms and instructions have been updated to reflect the new law.
Before you get started on your 2020 taxes, make sure you gather all of the right documents. You will need Form W-2 from your employer(s), along with Form 1099 for sources of income. Many of these forms are not required to be sent out before the beginning of February, so you may need to wait for them to arrive. While you are waiting, it’s also a good time to organize records of your deductions, such as mortgage interest and charitable contributions.
Federal income tax forms are now available on www.irs.gov. If you were born before January 2nd, 1956, you can use Form 1040-SR. This new tax form was introduced last year and makes it easier for seniors to file their taxes. For the 2020 tax year, everyone under the age of 65 will use Form 1040. To speed up refunds, the IRS recommends electronic filing and direct deposit.
“The hardest thing in the world to understand is the income tax.” – Albert Einstein
The IRS Free File program is now open for filers with less than $72,000 of income who would like to do their own taxes. The IRS will begin accepting individual tax returns on February 12th. The IRS expects to issue most tax refunds within 21 days of the return being accepted if the return is filed electronically with direct deposit information. The deadline for filing 2020 tax returns is April 15th. Unlike last year, no blanket extension is planned. However, an automatic extension to October 15th will be available for those who request an extension.
Although the 2020 tax year is over, there are still some opportunities to save on taxes if your tax bill looks like it will be larger than you expect. Deductible contributions to a traditional IRA for the 2020 tax year can be made until April 15th, 2021, or until you file your return, whichever comes first. The 2020 limit for IRA contributions is $6,000, or $7,000 if you are age 50 or older. Small business owners have additional options including a SEP IRA contribution.
Many other tax-advantaged strategies exist, but most require some planning in advance. Over the course of our lives, income taxes are one of the largest expenses most of us will pay. Although most of us will spend the next few months thinking about last year’s taxes, this is the time to plan ahead and think about what we can do to reduce next year’s taxes as well.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer