The IRS announced that tax season will start on Friday, February 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns. The February 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the recent tax law changes.
The IRS anticipates those who e-file a return claiming the earned income credit (EIC) or additional child tax credit (ACTC) will begin receiving their refund the first week of March, assuming no issues are detected. The IRS urges taxpayers and tax professionals to file electronically.
As taxpayers you probably have lots of questions this tax season ranging from: stimulus payments (Round 1 and 2), the recovery rebate credit, the taxability of your unemployment income, the paycheck protection program loans, economic injury disaster loan advance grant, which provisions were extended and other miscellaneous provisions. This is where preparing comes handy.
Why, What, When, Where and How to Prepare
Why? Well-organized tax records make it easier to prepare a tax return and they help provide answers if your tax return is selected for a tax examination or audit, or to prepare a response if you receive an IRS or State notice. Devoting time to organize your tax-related documents makes it easier for you to prepare your tax return.
What? Individuals, keep records that support items of income or a deduction or a credit appearing on your tax return, such as receipts, canceled checks, mileage logs and other documents (W2s, Form 1099s), until the period of limitation expires for that tax return.
What? Small Business Owners, keep all your employment tax records, any records documenting gross receipts, proof of purchases, expenses and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips, Forms 1099s, canceled checks, account statements, petty cash slips and real estate closing statements. Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
Note what’s new for 2020: The IRS introduced Form 1099-NEC for reporting independent contractor income of $600 or more, officially known as “non-employee compensation”. Form 1099-MISC is still around and is used to report miscellaneous income such as royalties, rents, prizes, and other income.
When? Ideally throughout the year, not just at tax filing time. This will give you enough time to avoid missing important deductions and credits because you are trying to remember a year later.
Where? You can have a manual system where you use folders kept in your home or office, or electronically if you are moving to a less paper system. There are lots of programs that are available now.
How? As you receive your tax related documents, such as W2s or Form 1099s, have a designated place for all of them. This will make preparing your tax return easier, and it may also remind you of relevant transactions.
You are now ready to file your tax return before or by March 15, 2021 for S corporations and partnerships or April 15, 2021 for Individuals and C corporations.
You can also file an Extension should you not have all the required documents or if you are not Prepared by the due date. Remember, an Extension to file is not an extension to pay, if you owe.
Esther Phahla is a Certified Public Accountant and Certified Tax Strategist in Temecula. She is the Author of tax planning books: “ Why Didn’t My CPA Tell Me That” and “10 Most Expensive Tax Mistakes That Cost Business Owners THOUSANDS”. She also holds a Master’s of Science in Taxation. She can be reached at (951) 514-2652 or visit www.estherphahlacpa.com.