The IRS often provides taxpayers with recommendations for preparing for the latest tax season. Based on a recent email Councilor, Buchanan & Mitchell (CBM) received from the IRS, we thought it might be valuable to share the following tips and advice.
- Get organized – Identify all the records you will need for tax season including any W-2s, 1099s, cancelled checks and other documents you’ve accumulated through 2020 related to your income, deductions or credits in one location.
- Organizational tools – Do you have software, an online file cabinet or some other electronic or paper-based tool to help you track all the critical documents you need? It’s easy to lose important documents when you have a LOT of documents to manage. Being organized means having the right tools to help you. It can also mean avoiding delays if you’re expecting a refund. Make it as easy on yourself (and your tax preparer) to file a complete and accurate tax return. We have digital tools to help you securely transmit your tax information to us.
- Income documents – It is now early February, which means you should have access to most critical documents by now including W-2s (wage and tax statements), Forms 1099-MISC (miscellaneous income), Forms 1099-INT (interest income), Forms 1099-NEC (nonemployee compensation), Forms 1099-G (government payments, such as unemployment compensation or state tax refunds) and Forms 1095-A (health insurance marketplace statements).
Employers, financial institutions and other organizations required to provide you with essential tax documentation typically make this information available by late January. Also please note that the IRS recently released Form 1099-NEC to report on nonemployee compensation. Read CBM’s write-up on this new tax form including differences in how to report nonemployee income in 2020.
- IRS Account – The IRS provides a secure online tool at IRS.gov, allowing taxpayers to review the latest information about their federal tax return (including information about the previous year) and details about any Economic Impact Payments they may have received. The IRS also includes a dedicated web page (here) to help taxpayers set up their online accounts. The IRS.gov website also offers a wealth of resources to help you get answers to tax questions and resolve tax issues.
- Unemployment Compensation – For 2020, unemployment compensation is a particularly critical topic for those whose work was disrupted by the pandemic. Please remember that unemployment compensation is taxable and must be reported as gross income on your tax return. You will see the amount you received in unemployment compensation on Form 1099-G.
- Earned Income Tax Credit – As a result of the Tax Relief Act of 2020, taxpayers whose jobs and/or income have been disrupted by the pandemic may use their 2019 earned income to determine their credit for 2020 (if their earned income in 2019 was higher than in 2020).
The same rule applies for the Additional Child Tax Credit.
- Electronic Filing – The IRS recommends filing your taxes electronically for faster and more accurate submission. Your tax team at CBM files electronically where possible to help ensure your data security, speed your processing and save you a trip to the post office.
- Direct Deposit and Online Payment – The IRS recommends selecting direct deposit for your refund to receive it faster. If you have money due with your return, pay online for quicker application and a permanent record.
We hope you find this information helpful. Please reach out to CBM through our online contact form if you have any questions about this season’s tax preparation and filing process.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
