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3 tips to lower your tax stress in 2021
It’s probably fair to say that most of us can’t wait to see 2020 out the door. But there’s one more task to carry out before you can wave goodbye to The Year We’d Rather Forget: Be ready to file your taxes.
With changes to the tax code for 2021—many because of the COVID-19 pandemic—now is the time to get your tax season ducks in a row while you have the luxury of time to do it. Here are some tips to be sure you’re ready:
Collect your documents—Do you have all the documents you need to file your taxes? Avoid the last-minute scramble by gathering them now. Besides the usual suspects (W-2s and 1099s), remember that special circumstances may require special documentation, especially if COVID affected you. A job layoff, falling ill with COVID, a closed business, the inability to work due to virus-related childcare issues—make sure you’ve documented these circumstances.
Tally up life changes—If you got married or divorced, purchased health insurance on the Marketplace, bought or sold a home or business, retired, or experienced any other major life change, be sure all records are up to date. Also, be sure that you’ve apprised involved parties of the change(s) and that you have proper documentation. Something as small as forgetting to change your name with the Social Security Administration could cause major delays in processing your return.
Check in with your preparer—Not only is it a good idea to reserve an appointment with your preparer before the first-quarter rush, it might be an equally good idea to schedule a quick check-in before year end, if possible. Your tax professional will have the latest on tax code changes. You can also get questions answered such as: How did the CARES Act stimulus check affect income? How do you handle the PPP loan that kept your business afloat? What’s the standard deduction for this year? What about those increased unemployment benefits? Whatever the question, your preparer can alert you of circumstances that affect your tax situation.
Sure, it might feel early to be thinking about taxes when we’re still in the holiday season, but just think of how nice it will be not to have to scramble or get hit with unwelcome surprises on Tax Day.