Here are a few things people can do now:
Check their withholding and make any adjustments soon
Since most taxpayers typically only have a few pay dates left this year, checking their withholding soon is especially important. It's even more important for those who:
• Received a smaller refund than expected after filing their 2019 taxes this year.
• Owed an unexpected tax bill last year.
• Experienced personal or financial changes that might change their tax liability.
Some people may owe an unexpected tax bill when they file their 2020 tax return next year, if they didn’t have enough withheld throughout the year. To avoid this kind of surprise, taxpayers should use the Tax Withholding Estimator to perform a quick paycheck or pension income checkup. Doing so helps them decide if they need to adjust their withholding or make estimated or additional tax payments now.
Gather tax documents and keep them for at least three years
Everyone should come up with a recordkeeping system. Whether it's electronic or paper, they should use a system to keep all important information in one place. Having all needed documents on hand before they prepare their return helps them file a complete and accurate tax return. This includes:
• Their 2019 tax return.
• Form W-2 from employers.
• Form 1099 from banks and other payers.
• Forms 1095-A from the marketplace for those claiming the premium tax credit.
• Form 1099-NEC, Nonemployee Compensation
• Notice 1444, Your Economic Impact Payment.
Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and virtual currencies. Therefore, taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.
Confirm mailing and email addresses
To make sure forms make it to the taxpayer on time, people should confirm now that each employer, bank and other payer has the taxpayer's current mailing address or email address. Typically, forms start arriving by mail or are available online in January.
Remember these new things when preparing for the 2021 tax filing season
• Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:
- They didn't receive an Economic Impact Payment in 2020.
- They are single and their payment was less than $1,200.
- They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
- They didn’t receive $500 for each qualifying child.
• Taxpayers who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income to anyone who received interest totaling at least $10.