2020 Tax Return Preparation Tips!

Nothing is certain in life except death and taxes.  And it is that time of year again… So, you heard that the tax deadline was extended to May 17^th and have been procrastinating preparing the dreaded yearly tax filing. Do not fret! We are here to help. It is time to fire-up Turbo Tax or your favorite tax preparation software to begin working on your 2020 Federal tax return. Below are a few tips to help you navigate this years’ filing and what to bring to the party:

• W-2: Reports your wages and withholding for Federal, State and City
• 1099-NEC: Self-employed workers used to have their income reported on Form 1099-MISC – this changed for 2020
• 1099-G: Many taxpayers were out of work in 2020 and received unemployment benefits. Form 1099-G reports this income and any withholding. THIS IS TAXABLE INCOME TO THE RECIPIENT AND MUST BE REPORTED. The first $10,200 of your unemployment will not be taxable if your adjusted gross income is under $150,000 per the American Rescue Plan enacted in March.  In Turbo Tax, be sure to key in your total unemployment income per box 1 on your 1099-G and the software will take care of the rest. 

EXCEPTION! Sadly, the fraudsters are at it again and many individuals received Form 1099-G, but never filed for unemployment benefits. In the state of Ohio alone, it is estimated that $330 Million has been paid in fraudulent unemployment claims. If you received a 1099-G and did not apply for unemployment benefits, contact your state unemployment office immediately to report the fraud. You should also check your credit report to make sure your credit information has not been accessed (in our experience to date, the information is being used for unemployment benefits only, but it is prudent to check this as well). Fraudulent unemployment claims are not taxable to you, but beware that you may receive a notice from the IRS later. 

• 1099-INT: Reports your interest earned; remember that banks are not required to issue a 1099-INT for interest under $10. You can also find this information on your December 2020 bank statement.
• 1099-DIV/Consolidated 1099 Statement: Reports dividends, interest, and gains/losses for sales of investments for held at a brokerage firm.
• 1098 – Mortgage Interest Statement: Reports mortgage interest, points paid, and real estate taxes paid for the year.
• Acknowledgement Letters: Charities are required to issue acknowledgment letters for gifts of $250 or more. The IRS requires you have these letters to take charitable deductions of $250 or more. Generally, charitable contributions will only be deductible if you itemize. For 2020, even if you did not itemize, you are eligible for an above the line deduction for cash donated to qualified charities of up to $300.

• The first payment should have been received between April and November 20.
• The second payment should have been received between December 20 and February 21.

4. Other interesting questions you will be asked in your tax software:

• Do you have a foreign bank account? This question is asked because you are required to file a Report of Foreign Bank and Financial Accounts (FBAR) if you had more than $10,000 in a foreign account at ANY TIME during 2020. Failure to file this report results in a penalty of 50% of the account balance at the time of the violation. Depending on the foreign investment, you may be required to file additional forms as well.
• Have you received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency at any time during the year? This is a newer question and has appeared with the increase in activity of crypto-currency trade. Remember that crypto is considered property and any sale should produce a gain or loss.

5. Driver’s License

6. Bank Account information – routing number and account number of an account with your name on it.

• Due to ongoing fraud, more often than not, if you attempt to directly deposit your tax refund into an account in someone else’s name, it will be rejected.

Time to jump in and prepare that return! There are many resources available at https://www.irs.gov online for frequently asked questions and there are many examples included that may help specific situations. Once you are finished, we highly recommend that you electronically file your Federal return and have your refunds directly deposited whenever possible. The IRS is severely behind due to COVID, with many IRS employees working remotely and paper filing will cause even more delays.
 
Now that you have filed your Federal return and it has been accepted with the IRS, you can expect your refund in about 21 days (if you took our advice and electronically filed your return and requested direct deposit). Expect to wait up to 12 weeks for paper filed returns that request paper checks. You can track the status of your refund at https://www.irs.gov/refunds.

Congratulations!  Another tax filing season is behind you.