The holiday season is upon us, and tax season will be here before you know it. Filing your tax returns is not exactly a festive time, but, just like the holidays, the season will be less stressful if you are prepared. Even though the year isn’t over yet, starting early reduces stress and confusion caused by rushing to meet a deadline. Plus, you have time to review your situation for tax savings or other strategies that may still be available before year-end, such as contributing to a retirement plan.
Whether you file your own tax returns or engage a tax professional, these three tips will help you be prepared for next tax season:
- Pandemic-Related Items
Various pandemic-relief and other tax changes could impact the information that you need to gather when filing your 2021 income taxes. The expanded Advance Child Tax Credit was authorized by the American Rescue Plan Act in March. Monthly advance tax credit payments started in July, based on the parent’s 2020 reported income, or the 2019 income if a 2020 return was not filed. The March tax act also included a third round of Economic Impact Payments, depending on a taxpayer’s income level and family size.
- Tax Estimates and Withholdings
Did you owe a lot when filing your 2020 returns, or did you get a big refund? An IRS Paycheck Checkup is an online tool to make sure that your withholdings will cover your anticipated tax liability https://www.irs.gov/paycheck-checkup.Taxpayers with investment, self-employment or other non-wage income can check if they need to make a larger or smaller quarterly estimated tax payments at https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.
- Organize Tax Documents
Use your 2020 tax return to identify documents that you’ll need to accumulate in preparation for next tax season. Start printing the charitable donation letters and real estate tax bills to cut the delay when the 1099s and W-2s are released or mailed to you. If a life event in 2021, such as buying a home, starting a business, or changing your marital status, you need to check out how it impacts your taxes. You might need a tax professional to help you plan for and understand the tax impacts of life changes.
Follow these three tips to be prepared for next tax season. And one last thing. Supply chain issues hit the tax profession just like it’s hit the store shelves. If you plan to engage a tax professional for your 2021 preparation, start looking now. There’s a shortage.