If you’re like me and said “New Year, New Me,” then it’s probably time to check in on those goals. It’s always a good idea to check in with yourself, find some grounding, and catch up on your own life. Getting to a good place mentally and finding clarity can be accomplished by checking off tasks that might be hanging over your head. I want to put all of 2020 behind me, including my 2020 taxes! E-file made that a snap. When I used E-file, I finished my taxes in 20 minutes and got my refund 11 days later. So great.
For many working people, this isn’t a huge deal because much of your taxes will likely be pulled from your paycheck automatically, and you may even be getting a tax refund. But the only way to get your tax refund is to actually file your taxes. For everyone else, filing your taxes correctly and on time is important to avoid expensive penalties, fees, and interest for “failure to pay.”
Not all of us are comfortable with numbers and paperwork, and that’s okay. No one can do it all, and you shouldn’t feel like you need to. Doing your taxes correctly on your own with no help takes a level of experience that not all of us possess. Or it might just be a waste of your time that could be better spent on another project you’ve been putting off.
Here’s a foolproof guide for doing your taxes the right way this year. And remember, the date to file is April 15th if you want to avoid penalties.
Find Your Previous Tax Returns
A simple way to make sure you are successful during tax season is to get ahold of your previous tax returns from the last few years. If you haven’t seen any major life-changing events to your income or filing status, using your previous returns will accelerate your tax preparation process and provide a good amount of the information you need for the filing.
The coolest thing about using E-File, is that once you start, they keep and save your returns and use your previous tax returns to auto-fill most of the important information that is required on the forms. So it gets easier and faster every year!
Your recent returns can also help you remember all the different deductions you’re eligible for and other important details that will affect the taxes you pay. Let’s say you donated to charity or contributed to an IRA within the past year. You are likely able to deduct those donations if you have a physical receipt or canceled check from the charity. Look over your previous returns for information like this regarding deduction-eligible expenses, automatic deductions, charity contributions, or other items you make on an annual basis.
Make Sure You Have What You Need
Here are some important things you may need. This is not a complete list. I get a K1 and I have an HSA (Health Savings Account), so I also get a 1099-SA. All of us have different tax documents that are necessary for their circumstance.
W2s – this will have your earnings on it
1099 – if you were a contract worker, you’ll get this instead of a traditional W2
1099-G – if you were unemployed at any point, you should receive this
1095 – relates to your health insurance coverage
1098-E – if you paid student loan interest
1098 – if you paid mortgage interest
Standard Tax Deductions & Extensions
Tax laws recently changed, and a big part of those changes was regarding deductions and exemptions. E-file already knows all of this. The standard deduction for a married couple filing their taxes jointly went from $12,000 to $24,000, so chances are you don’t even have to itemize. For individuals filing as “single,” that number also nearly doubled from $6,500 to $12,000.
Also, if you have children or dependents, then there are other changes to be aware of and E-file will guide you through all of this.
The changes to the tax law also changed itemized deductions. An example of this is medical cost deductions. These had been beyond 10% and are now only 7.5%. If you had a lengthy hospital stay due to COVID-19 or something else, totaling up your medical expenses might be worth it this year. There are some other changes to things, like mortgage interest deduction on a loan, that could have an impact on the taxes you owe as well.
Hire a CPA if You Have Complicated Taxes
My honest opinion is that if you own a business or have an otherwise complicated tax situation, and haven’t been through a couple of tax seasons with your CPA, E-File may not be your best option right now. Tax season isn’t something any of us look forward to, especially if you’re a business owner or have highly involved and complicated tax returns. Some people buy a tax preparation software program only to get into the software and realize that they’re still not comfortable filing on their own. Once you’ve been through it a few times, you can ditch the expensive CPA and E-file. Most people will find E-file a total breeze.
Pay Your Taxes on Time!
You’d be surprised to learn how many people fail to not only file their taxes on time but also pay them when they owe less than $100. Thankfully, most people with E-File will actually get a refund—money you can use to get what you truly want. Or you can even open an IRA so you can get a nifty 1099-SA like I did.