Tax Day 2021 may not be until April, but there’s no harm in preparing early. You can avoid surprisingly high tax bills and even start itemizing your deductions. There may be unexpected ways you can save on tax payments this year.
What Is Tax Day?
Tax day is the filing and payment deadline for income taxes set by the IRS. Typically in mid-April, it is rarely changed. Rare exceptions include at the start of the coronavirus pandemic (last year’s deadline was moved to July 15).
When Is Tax Day This Year?
April 15 is the deadline to file your income taxes. But you can prepare and even file your taxes now. The first day the IRS began accepting 2020 tax returns was February 12.
If you’re not ready this second to file your taxes, you can take steps to prepare. These tips can help you get started and allow for a smoother process:
- Watch out for Shady Tax Preparers: A legitimate tax preparer is educated in tax law and the latest changes to the system. Their job or business is to safeguard your financial information and report and process your tax returns accurately. However, there are many scammers that engage in fraudulent activities such as identity theft, which can target your credit. You can monitor your credit during tax season to spot any suspicious activity. It’s also important to be vigilant; reporting fraud to the IRS triggers a lengthy investigation process that will delay your refund.
- Gather Your Paperwork Organized: The paperwork needed during tax time can be overwhelming. Start gathering important documents before you file. These include forms that prove your income, such as W-2s and 1099s, bank statements, last year’s tax return, a health-coverage statement, and records showing what you paid in mortgage interest and property taxes. If you made any charitable contributions, you’ll need records of those as well.
- Contribute to an IRA: You can contribute up to $6,000 per year ($7,000 if you’re 50 or older) to an Individual Retirement Account (IRA). These contributions are tax-deferred and tax-deductible. And you can contribute up until Tax Day 2021 and have it count towards your 2020 tax returns. Another option is to contribute to a Health Savings Account (HSA) and deduct the contributions from your income.
If you have a traditional IRA, earnings are not taxed while in the account, but withdrawals are. One way to save is to convert your account to a Roth IRA. Distributions are tax-free; however, you will be taxed on the amount converted.
- Donate to Charity: Many pick this time of the year to clean up their clutter. If you’re emptying out a closet or the attic, donate unused items to charity. Donations have tax benefits, while monetary donations are deductible as well. Track all your charitable donations throughout the year and itemize them on your tax forms.
- Consider Getting a Professional to Help: If you don’t have the confidence to be a do-it-yourself tax filer, a tax professional can save you time and stress. Filing taxes requires patience. You must gather every necessary document and fill out various forms. A tax preparer can help gather the right data, take advantage of deductions and credits, and do your income tax returns for you, tailoring their service and advice based on your unique situation.
Save on Your Tax Bill
Here are some other strategies to reduce your tax bill this year:
- Update Your W-4: You can make changes to your W-4 form any time. It tells your employer how much tax to withhold from your paychecks. Raising withholdings can lower your tax burden when you file. However, if last year’s refund was generous, reduce your withholding to take home more from each paycheck during the year.
- Save for College: Contributing to a 529 plan can reduce your tax bill. A 529 savings account is run by a state or educational institution. This won’t work for federal income taxes although it can save on your state taxes. One caveat is if you contribute over $15,000, with gifts included, you may be hit with a gift tax.
- Utilize an FSA: Use your employer’s Flexible Spending Account (FSA), if one is offered, to lower your tax bill. You can currently contribute up to $2,750. The funds in an FSA must be used for medical and dental expenses or for items such as bandages, pregnancy test kits, blood pressure monitors, and other eligible items.
Contact American Credit
In addition to saving on this year’s taxes, it’s a good idea to check your credit reports. The Fair Credit Reporting Act requires consumer information in credit agency files to be accurate, but errors do occur. At American Credit, we provide pre-litigation based credit repair services that skip the dispute letter process and result in a higher success rate. Continue browsing to learn more or feel free to call 877-856-4999 for a no-cost credit consultation.