Many of us had financial changes in 2020 that will impact our tax returns. If you’re nodding your head, it’s especially important to start preparing now since your return won’t resemble those of the past. You might even find a few welcome financial surprises in the form of new tax credits and deductions.
Here's what you can do now to prepare for the 2021 tax filing season.
Mark your calendar
You can file your federal tax return as early as February 12, 2021. But don't rush to file your return if you haven't received all of your tax documents from employers, banks, and other payers. If you need more time to file your return, request an extension by Thursday, April 15, 2021. You'll then have until October 15, 2021 to file taxes. Important: an extension to file is not an extension to pay if you owe taxes. What does that mean? You’ll need to do some homework to figure out whether you’ll owe or get a refund. If you owe, you’ll need to pay estimated taxes by April 15 even if you request an extension.
So schedule some time in your calendar. An hour per week will be much less stressful than an all-day cram session on April 14.
Gather your tax documents
Collecting and organizing your tax records now can help ensure that you take advantage of every tax credit and deduction available to you. Income records include:
- W-2 forms
- 1099 forms
- Records of other income or payments
Deductions may include 1098 forms or receipts if you itemize.
If you earned at least $10 in interest income from HawaiiUSA, you were issued a 1099. Log in to your Digital Banking account and go to eDocs to view this and any other account-related tax documents you may have received.
Don't forget about these
Remember, you must report all income and payments from the gig economy, employers, virtual currencies, banks and other payers — including unemployment compensation benefits. If you did not have taxes withheld on unemployment income, be aware that you will need to pay taxes on this.
If you received COVID-19 related federal assistance, make sure you keep IRS Notice 1444, Your Economic Impact Payment with your other tax documents. The Internal Revenue Service (IRS) mails it out within 15 days of making the payment.
Didn’t receive the Economic Impact Payment? Or did not receive the maximum amount? Eligible taxpayers can claim a Recovery Rebate Credit. This credit has the potential to increase your refund or decrease the amount you might owe the IRS.
Learn About Recent Filing Changes
In response to the COVID-19 pandemic, last year saw several changes to the tax-filing season, including extended deadlines and the waiver of late payment fees. Here are a few changes to be aware of:
- The standard deduction has increased by as much as $400 compared to the prior tax year. Exact amounts depend on your filing status (single, married filing jointly, head of household, etc.).
- If you made a charitable contribution in 2020 and don't itemize deductions, you might be able to take a charitable deduction that could lower your taxable income and increase your potential refund.
- Under certain circumstances, businesses unable to obtain Paycheck Protection Program loan forgiveness may claim the Employee Retention Credit.
- Unlike in prior years, you can continue contributing to your traditional IRA if you're over the age of 70½ and still working. Required minimum distributions from retirement accounts can also start later. Learn more about the 2020 Further Consolidated Appropriations Act, which makes it easier to save for retirement.
- While the medical expenses deduction hasn't changed, you may have had higher expenses than in years past. If you itemize deductions, you may be able to deduct certain medical and dental expenses.
For more information, consult a tax professional or visit the IRS website.
Do you qualify for free filing services?
If you have a simple tax situation and meet income limits, you may be eligible for free tax help. Visit hawaiitaxhelp.org to see if you qualify for in-person or online tax return assistance.
Getting a refund or making a payment
If you will be getting a refund, the quickest way to receive your money is through direct deposit from the IRS. You’ll need to have your bank or credit union routing number and your account number ready. If you opt to wait for a paper check in the mail, deposit it using your mobile device if your bank or credit union offers this. Learn more about mobile deposit.
If you will owe money, the good news is the earlier you discover this, the more options you’ll have. The best-case scenario is to save what you need between now and April 15, but if that isn’t possible you’ll have time to explore low interest-rate loans or even an IRS payment plan. Don’t wait until the last minute and pay using a high-interest credit card or payday loan; you’ll end up making a financially painful situation much worse.
Tax season doesn’t have to be a monster, even if you owe money. By starting early and being proactive you’ll feel more in control of your situation, even when the world seems out of control.