Many people tend to procrastinate when it comes to their personal tax returns. In fact, according to the IRS, over 50 million people left filing taxes to the very last weekend!
This year’s deadline for filing personal tax returns has changeddue to COVID-19. You can file as early as February 2020, since many important tax forms (W-2, 1099) are issued by the end of January. Check the IRS website for the most up to date information.
There is no need to wait for all your tax forms to be issued in the new year. You can reduce stress and headaches greatly if you start preparing for the 2020 tax season today.
1. Familiarize yourself with what’s new
The 2018 tax year had some drastic changes as a result of the government’s tax reform going into effect. Relatively little has changed for the 2019 tax year.
Firstly, income tax brackets and standard deductions have both increased slightly to account for inflation. The rise in standard deductions might be a deciding factor if you’re currently on the fence between standard or itemized deductions.
For healthcare, the biggest change is the elimination of the $695 penalty for not having health insurance! However, the deduction for unreimbursed medical expenses has changed to a higher threshold. This may reduce the amount you could deduct.
You can read more on the incoming 2020 tax season changes here.
2. Get all receipts in order
This is very important to small business owners and freelancers. especially since you will have many out-of-pocket expenses to deduct. However, it can apply to anyone filing a personal tax return.
Some people think they don’t need to keep receipts if they take standard deductions. That is technically true, but how would you know if itemized deductions are the better choice or not if you haven’t been keeping track?
Of course, it is best if you’ve been keeping well-organized files all year, but it’s not too late to get everything together now. Common deductions include:
- Mortgage interest
- Property taxes
- Charitable contributions
- Unreimbursed medical expenses
There are many more tax deductions that may be less common. A tax professional can help you see if you’re missing out on any itemized deductions.
3. Plan your investment strategy
An Individual Retirement Account (IRA) and a Health Savings Account (HSA) both allow you to deduct contributions from your taxes. However, did you know that you could count IRA and HSA contributions in early 2020 against 2019’s contribution limit? You can do this up until the filing deadline (April 15, 2020).
You can get a pretty decent idea of how much tax you owe for the 2019 tax year by the end of the year. If you have unused contribution room in either account, it may be worth considering this strategy to reduce your taxes owed for 2019. In many cases, you can deduct the full amount that was contributed! However, the amount of deductible also depends on your adjusted gross income (AGI) and your marital status.
Looking to start preparing for the 2020 tax season? Let’s talk!