With the New Year, it’s time to begin to sort out taxes.
W-2s will be in the mail soon, and time is rapidly running out for you to make contributions to retirement accounts. If, like many folks, you’re ready to go ahead and get your taxes filed, here’s some few tips to remember.
First things first: remember, you have to claim ALL your income, so if 2020 saw your branching out into various “gigs” like delivery driving, maybe some “cash and carry” work, or contracting, you’re legally required to document that and pay taxes on it. At the same time, a lot of those jobs don’t take out any taxes on your earnings – that means you’re responsible for it.
Now, some companies will send you a 1099 for it, but taken by experience, a lot of them conveniently “forget” to do so. You need to make notes on that income and make sure you have it documented before you file, because not doing so can result in a “surprise” tax bill when you least expect it.
Next is if you haven’t maxed out your retirement account contributions, you need to do that prior to filing. This isn’t just idle talk, either. We have worked with many clients on tax prep that “rounded up” their 401(k) contributions at the end of the financial year to allow them to slide into a lower tax bracket. In one case, the amount they contributed actually saved them nearly $1,000 due to the difference in their tax bills for the year.
Besides, you’re putting this money into your retirement accounts, so you’re really “keeping” it.
The last thing is probably the hardest, as you will need to get all your paperwork, receipts, and documentation together. Many companies and financial institutions seem to take forevero send this material out to you, but filing your taxes isn’t about speed, it’s about whether or not you’ve gotten them filed correctly.
But eventually, the IRS catches up with mistakes, and over the years, taxpayers get letters discussing shortcomings years after the fact. Accuracy counts for a lot, and the only way to be accurate is to have all the data you need. Even worse? In some cases, the IRS can assess penalties and make those retroactive with interest to the tax year in question.
This time of year, of course we’re getting busier, but we are always here if you have questions about your own returns. Contact us if you need any help in filing your tax returns today.