A Tax-planning Checklist
By Dan Eger
It is that time again, your favorite and mine, tax season!
As we have made it through hopefully the worst of the pandemic, dealing with all the ups and downs of learning this new normal in life, one thing will remain the same — the IRS still wants our money. At some things have not changed due to COVID-19.
Here are some steps to take now to help make filing for the 2020 tax season easier. Below is a list of items to gather. These are the most common required forms and items. The list is not all-inclusive, as everyone’s tax situation is different. Also included are a few other things for you to consider as you prepare to file your 2020 tax return.
Documentation of Income
• W-2 – Wages, salaries, and tips
• W-2G – Gambling winnings
• 1099-Int and 1099-OID – Interest income statements
• 1099-DIV – Dividend income statements
• 1099-B – Capital gains (sales of stock, land, and other items)
• 1099-G – Certain government payments
— Statement of state tax refunds
— Unemployment benefits
• 1099-Misc – Miscellaneous income
• 1099-S – Sale of real estate (home)
• 1099-R – Retirement income
• 1099-SSA – Social Security income
• K-1 – Income from partnerships, trusts, and S-corporations
Documentation for Deductions
If you think all your deductions for Schedule A will not add up to more than $12,400 for single, $18,650 for head of household, or $24,800 for married filing jointly, save yourself the time required to itemize deductions and just plan to take the standard deduction.
• Medical Expenses (out of pocket, limited to 7.5% of adjusted gross income)
— Medical insurance (paid with post-tax dollars)
— Long-term-care insurance
— Prescription medicine and drugs
— Hospital expenses
— Long-term care expenses (in-home nurse, nursing home, etc.)
— Doctor and dentist payments
— Eyeglasses and contacts
— Miles traveled for medical purposes
• Taxes You Paid (limited to $10,000)
— State withholding from your W-2
— Real-estate taxes paid
— Estimated state tax payments and amount paid with prior year return
— Personal property (excise)
• Interest You Paid
— 1098-Misc – mortgage-interest statement
— Interest paid to private party for home purchase
— Qualified investment interest
— Points paid on purchase of principal residence
— Points paid to refinance (amortized over life of loan)
— Mortgage-insurance premiums
• Gifts to Charity (For 2020, filers who claim the standard deduction can take an additional deduction up to $300 for cash contributions.)
— Cash and check receipts from qualified organization
— Non-cash items, which need a summary list and responsible gift calculation (IRS tables). If the gift is more than $5,000, a written appraisal is required.
— Donation and acknowledgement letters (over $250)
— Gifts of stocks (you need the market value on the date of gift)
• Additional Adjustments (Non-Schedule A)
— 1098-T – Tuition statement
— Educator expenses (up to $250)
— 1098-E – Student-loan interest deduction
— 5498 HSA – Health savings account contributions
— 1099-SA – Distributions from HAS
— Qualified child and dependent care expenses
— Verify any estimated tax payments (does not include taxes withheld)
Sole proprietors (Schedule C) or owners of rental real estate (Schedule E, Part I) need to compile all income and expenses for the year. You need to retain adequate documentation to substantiate the amounts that are reported.
Other Items to Consider
If you are a confirmed identity-theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.
Starting in 2021, you may opt into the IP PIN program. Visit www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin to set up your IP PIN. An IP PIN helps prevent someone else from filing a fraudulent tax return using your Social Security number.
What If You Have Been Compromised?
How do you know if someone has filed a return with your information? The most common way is that your tax return will get rejected for e-file. These scammers file early. You may also get a letter from the IRS requesting you verify certain information.
If this does happen, there are steps to take to get this rectified:
1. File Form 14039 (Identity Theft Affidavit).
2. Paper-file your return.
3. Visit identitytheft.gov for additional steps.
New for 2021: Recovery Rebate Credit
Eligible individuals who did not receive a 2020 economic impact payment (stimulus check), or received a reduced amount, may be able to claim the Recovery Rebate Credit on their 2020 tax return. There is a worksheet to use to figure the amount of credit for which you are eligible based on your 2020 tax return. Generally, this credit will increase the amount of your tax refund or lower the amount of the tax you owe.
Who Will Prepare My Return?
Are you going to be preparing your tax return, or will you hire someone to file on your behalf? You might want to plan that out now so you know the required information you will need and the fee structure you can expect to pay for completion of all applicable forms. In addition to all the items listed above, the tax preparer will ask you for a copy of your last tax return that was filed. The IRS offers a ‘file free platform’ to file your tax return if your income is under $72,000. You can find this at irs.gov or the IRS2Go app. There are also some local tax-assistance and counseling programs, depending on your age and income levels (VITA/TCE).
Interactive Tax Assistant
The Interactive Tax Assist (ITA) is an IRS online tool (irs.gov) to help you get answers to several tax-law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits.
Finally, be especially careful during this time of year to protect yourself against those trying to defraud or scam you. The IRS will never — let me repeat that: NEVER — call you directly unless you are already in litigation with them. They will not initiate contact by e-mail, text, or social media. The IRS will contact you by U.S. mail.
However, you still need to be wary of items received by mail. Anything requesting your Social Security number or any credit-card information is a dead giveaway. Watch out for websites and social-media attempts that request money or personal information and for schemes tied to economic impact payments. You can check the irs.gov website to research any notice you receive or any concerns you may have. You can also contact your tax practitioner for help and assistance.
Dan Eger is a senior associate at Holyoke-based accounting firm Meyers Brothers Kalicka; (413) 536-8510.