Tax Time: Get File Ready
It’s that time of year again! Tax season gets a bad rap but that may be because people are unsure of how to document personal finances when it comes to submitting annual taxes.
To make it easier for you, we’ve created recommendations to get you feeling ready and capable when it comes time to file.
1. Your Personal Info
This may seem obvious, but it’s super important to getting started. For a refresher, grab last year’s federal and state tax returns. Did you need any documents last year that you’ll need again this year? Make sure you have social security numbers for yourself, your spouse (if you’re married and filing a joint return), and any dependents you may have.
2. Maximize Your IRA and HSA Contributions
You have until the filing date of April 15 to open or contribute to a traditional IRA for the taxable year. That means if you are filing for your 2019 taxes in April of 2020, your contribution counts toward your 2019 taxes and can lower your taxable income. You can also make sure deposits into an HSA account reach the allowable limit for the previous year, which should reduce tax liability. Be sure to consult a tax professional to make sure you meet requirements for contributions.
3. Income Records
You are required to file your taxes if your income exceeds $12,200 for a single filer, and $24,400 for a married joint filer. Gather all W-2 forms that document your income for the 2019 year. Remember your spouse’s forms, if filing together. Employers must have these sent out by January 31 and will be sent by postal mail or electronically. Additionally, you’ll need any 1099 forms as well. Here’s a list of popular ones:
- 1099-MISC for contract work
- 1099-K for third party income payments (like PayPal)
- 1099-T for educational transactions (tuition, fees)
- 1099-E for paying interest on student loans
Pro Tip: File your taxes early, so you have the time to find all possible deductions.
4. Check Deductions + Credits
Deductions reduce your taxable income while credits reduce the amount of taxes that you owe. They affect your taxes differently, yet both could mean a higher refund! Check back to last year’s tax returns. Do the same credits and deductions apply? Don’t forget these ones:
- Property taxes and mortgage interest
- Educations expenses (tuition, fees, interest on loans)
- Retirement account contributions
- Donations to charity
5. Life Changes
Did anything, ahem, life changing happen in 2019? Did you buy or sell a home, get married or have a baby? These big moments may alter your taxes. For instance, if you file with your married name and didn’t legally file for a name change, your tax return could be rejected. Bummer! Growing your family, on the other hand, allows for tax credits of $2,000 per child, significantly raising your return. Winning! Other life changes include accepting a promotion at work, being granted an inheritance, or experiencing a death in the family (particularly your spouse).
Now you’re more prepared to file your taxes! Whichever way you file—by paper, e-filing, or with a tax preparer—the deadline is April 15, 2020. If the thought of doing your taxes stresses you out, take a deep breath. Look over the checklist. And know that you’ll be gaining more confidence and ownership of your financial situation.
Auburn Savings Bank does not provide tax, legal or accounting advice. This material is for informational purposes only and is not intended to be taken as tax, legal or accounting advice. Please consult a qualified tax professionals before engaging in any transaction. Source: nerdwallet.com, irs.gov, turbotax.intuit.com