UPDATE: The Internal Revenue Service (IRS) has extended the tax filing deadline by one month, to May 17, 2021 to accommodate new stimulus payments and a backlog of tax returns. The IRS is also giving individuals who owe money on their 2020 tax returns until May 17, 2021, to make those payments. Individuals can also make contributions to individual retirement accounts (IRAs) for 2020 until May 17, 2021. Due to severe weather, residents of Texas, Oklahoma, and Louisiana have until June 15, 2021 to file, make tax payments, and contribute to their IRAs. Taxpayers who request an extension on the deadline will have until October 15, 2021, to file. You can get more information here.
It might seem like you just filed last year’s taxes, but it’s time to start thinking about filing your 2021 tax return.
The Internal Revenue Service (IRS) will begin accepting tax returns for income earned in 2020 on February 12, 2021, two weeks later than it typically does. The IRS pushed the start date for tax season to test updates to its filing system that account for pandemic-related changes to people’s incomes, including the second round of stimulus checks approved at the end of 2020. You still have until April 15, 2021, to submit your tax return or to apply for an extension.
To help you prepare to file, Stash has created the following checklist to help make sure you’re informed for the upcoming filing season and that you have everything you need:
#1 Know how Covid-19 might affect your filing
The Covid-19 pandemic led to changes in last year’s tax season, and some of those changes could affect your filing this year as well. The tax deadline was pushed to July 15, 2020, from April 15 to give people more time to submit their returns. However, the IRS is reportedly still dealing with a backlog of filings from 2020 that could lead to delays in the 2021 filing season.
Also in response to the pandemic, the IRS allowed taxpayers affected by Covid-19 to take early withdrawals from their retirement accounts without incurring penalties. Holders of traditional IRA or 401(k) accounts who are under 59 ½ were allowed to take out up to $100,000 during the 2020 tax year, without paying the standard 10% penalty that previously applied. The same goes for nonprofit workers who have 403(b) accounts. The IRS also allowed some 401(k) holders to take out a loan from their account for Covid-19-related reasons.
If you did withdraw from your IRA, you’ll need to claim that money as income on your tax return this year. However, you’ll have three years to pay the taxes you owe on that additional income.
You might have paused your student loan payments in 2020 in response to the forbearance period, during which federal student loans haven’t accrued interest. For those who have federal student loans, you may be eligible to deduct part of the interest you paid on those loans in 2020, if you paid $600 or more in interest.
#2 Find out which forms you need and when to expect them
Before you start to file, know which forms you’ll need and make sure you have them. If you are, or were, fully employed by a company that withheld taxes from your paycheck in 2020, you should receive a W-2 based on the W-4 you filled out when you started. If you’re a freelancer or a contractor, you should receive a 1099 form. Companies are required to send out W-2s and 1099s by February 1, 2021.
Keep in mind that you might have additional forms based on your situation. For example, if you withdrew from your retirement accounts, you might receive 1099-R. Or if you received dividends from investments or you have realized capital gains or losses from investments, you might get a 1099-DIV or a 1099-B. For more information on which forms you might receive if you invest with Stash and when go here.
#3 Figure out your tax bracket
Another important thing to know when you start assembling your paperwork is what tax bracket you’re in. Here are the tax brackets for individuals and married couples in 2020, adjusted for inflation:
2020 Federal Tax Rates, Unmarried Individuals
|up to $9,875||10%|
|Over $9,875 to $40,125||12%|
|Over $40,125 to $85,525||22%|
|Over $85,525 to $163,300||24%|
|Over $163,000 to $207,350||32%|
|Over $207,350 to $518,400||35%|
2020 Federal Income Tax Rates, Married Filing Jointly
|Up to $19,750||10%|
|Over $19,750 to $80,250||12%|
|Over $80,250 to $171,050||22%|
|Over $171,050 to $326,600||24%|
|Over $326,600 to $414,700||32%|
|Over $414,700 to $622,050||35%|
#4 Gather any receipts you’ll need if you decided to itemize
For the 2020 tax year, the standard deduction for individuals is $12,400 and $24,800 for married couples. By taking the standard deduction, you can reduce your taxable income by that amount. But you might instead decide to itemize your deductions if you’re not permitted to take the standard deduction for some reason, or if your itemized deductions are likely to be worth more than the standard deduction.
You might itemize expenses such as property taxes, interest accrued on your mortgage, charitable contributions, work-related expenses, and more. If you decide to itemize your deductions, you’ll need to collect all of the receipts and documents to substantiate your expenses.
#5 Determine whether you’ll need to work with a tax professional
You’ll also need to decide how you’re going to file your taxes. You might want to use an online service. Or if your taxes are more complicated this year because, for example, you lived in multiple states or worked a few different jobs, you might want to work with a tax professional.
Taxpayers who earned $72,000 or less in 2020 might qualify for the Free File Program from the IRS. Some tax preparation companies allow those taxpayers to file their federal, and in some cases state, taxes free of charge.
#6 Consider filing online, or apply for an extension
The IRS recommends filing your tax return online in order to expedite the process of receiving a refund if you do receive one. You might also consider setting up direct deposit with your return so your refund can be deposited into your account without you needing to wait for it to arrive by mail. You can set up Direct Deposit with Stash to get your refund routed to your Stash account.
And remember that if you need more time to file your return, you need to apply for an extension to July 15, 2021, by April 15.
This article should not be construed as tax advice. Please consult a tax professional for additional questions.