Gathering Records Is the First Step in Tax Preparation

It won’t be long before the Internal Revenue Service opens its gates and the filing season will be officially underway.

In the meantime, though, there’s enough work to keep us all busy. That starts with taxpayers, who, if they haven’t done so already, should be gathering their records now. This includes all year-end income documents they have to help ensure they can file a complete and accurate 2020 income tax return and avoid refund delays.

The necessary records include W-2s, 1099s, receipts, canceled checks and any other documents supporting any income, deductions or credits on their return.

Many of the reporting forms should have already been received by taxpayers. These forms include:

  • Forms W-2, Wage and Tax Statement
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-INT, Interest Income
  • Form 1099-NEC, Non-employee Compensation
  • Form 1099-G, Certain Government Payments; such as unemployment compensation or a state tax refund
  • Form 1095-A, Health Insurance Marketplace Statements

Other steps to take now

It’s a good idea for taxpayers to look at their IRS account online before starting their own filing process, whether doing it themselves or using a tax professional.

This allows them to see the latest information about their federal tax account and most-recently filed tax return using a secure and convenient tool on IRS.gov. It’s especially handy if they need information from last year’s return.

Those with an account on IRS.gov can also see the amounts of any Economic Impact Payments the taxpayer has received. This can be helpful to eligible taxpayers who either did not receive any Economic Impact Payments – or got less than the full payments. They can then claim the recovery rebate credit on their 2020 federal tax return.

People can visit Secure Access: How to Register for Certain Online Self-Help Tools for more information about how to create an account or how to reset the username or password.

Don’t overlook unemployment benefits

We can’t stress this point enough: Unemployment compensation is taxable and must be included as gross income on a taxpayer’s return. As we mentioned, taxpayers should have already received a Form 1099-G, showing their unemployment income.

People can have federal taxes withheld from their unemployment benefits or make quarterly estimated tax payments, but a surprising number of taxpayers don’t do either one. In that case, taxes on those benefits must be paid when their 2020 tax return is filed. So those who didn’t have tax withheld from their unemployment payments could see a smaller refund than expected or could possibly even have a tax bill due.

Taxpayers who get a Form 1099-G for unemployment compensation they never received should contact their state tax agency and ask for a corrected Form 1099-G.

However, taxpayers should file an accurate return that includes the income they actually received.

States shouldn’t issue Forms 1099-G to taxpayers they know to be victims of identity theft involving unemployment compensation. Taxpayers who are victims of unemployment compensation-based identity theft should not file an identity theft affidavit with the IRS.

For more information, check out Tax Topic 418, Unemployment Compensation; Publication 525, Taxable and Nontaxable Income; and What Taxpayers Need to Know to Claim the Earned Income Tax Credit.

Source: COVID Tax Tip 2021-16

Story provided by TaxingSubjects.com

Anderson Professional Services
CONTACT US
2015 Indian Hills Drive
Sioux City, IA 51104
PHONE: 712-224-2942
E-MAIL: angie@apssiouxland.com
221 East Main Street
Cherokee, IA 51012

FILE ONLINE TODAY