The April 15th tax filing and payment deadline will be here soon. Although there is uncertainty surrounding our recovery from the COVID-19 pandemic, we cannot rely on being granted a blanket extension for filing our tax returns like last year. 2020 was a year of unique changes, and some of those changes are still occurring, so we encourage you to stay patient this tax season. It can be overwhelming, but these changes will be more manageable with good preparation and communication. Here are some tips to help ensure you are adequately prepared and have a better tax filing experience.
Consider the Past
- Think about how your circumstances changed in 2020. Did you collect unemployment? Did you change jobs? Did you start a new side gig? Did you start investing in stocks, cryptocurrencies, or other trading instruments?
- Identify new income sources, and make sure you have a good list ready to share with your tax preparer.
- Gather key forms for tax filing such as 1099s, W-2s, K-1s, and others. Your tax preparer can give you a list of the most common forms if you’re not sure what you need. If you’re missing some, contact the appropriate party, find out when you can expect to receive them, and communicate these timelines with your preparer.
- Ensure your accounting records and supporting documents are in good order by posting year-end journal entries and confirming all activity is recorded. Your tax preparer can help you understand how your business activity (1120S, 1065, Schedule C) feeds into your individual return if you’re unsure.
- If you expect important tax documents to arrive late, let your preparer know so that you can file an extension. A tax filing extension request will grant you more time to file your taxes, but payments remain due on April 15th. Any tax liability not satisfied by April 15th will begin to accrue penalties and interest. Your tax preparer can also help you calculate your estimated tax liability or overpayment before the deadline.
Manage the Present
- What you do now can make a big difference in your future tax filing. Communicate throughout the year with your tax preparer about changes in dependents, marital status, business ownership, income sources, home purchases, and others.
- Gather information about estimated tax payments made during the year. You can view your tax account online with the IRS to retrieve information about your tax filings. You can also figure your estimated tax by using Form 1040-ES or Form 1120-W.
- Stimulus checks, Small Business Administration (SBA) loans and federal assistance payments like those from the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) Program, and support payments from state-run programs may impact your tax filings.
- The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act, 2021 both made changes that will impact 2020 individual tax returns. For example, even if you don’t itemize your deductions, you may be permitted a $300 deduction for charitable contributions. These forms are still being updated.
Plan for the Future
- Are you planning significant changes to your business operations in 2021? Has something already happened to your business that may affect your 2021 or future filings? Changes to your business activity may affect your estimated tax payments and tax strategies, so it’s important that you communicate these changes to your tax preparer.
- Also let your preparer know if your personal situation has changed or will change in 2021. If you plan to change jobs, open a new business, move, expand your family, or create a home office for your business, now is an excellent time to make your preparer aware.
- New automation tools are making it easier than ever to track your income and expenses and help you better manage your money. Evaluate your need for a formal accounting system or improve your current one by talking with your tax preparer. It may turn out to be more affordable than you think.
Most tax filings for the individual taxpayer and small business owner happen once per year, but accounting and financial planning happens every day. Our team at Landmark can help you not only with preparing and filing your individual or business return, but also with planning for the future. We are happy to partner with you and help you navigate through complex tax reporting requirements and to manage financial changes that may impact your business. Contact us today with any questions you might have.