10 Top Tips for 2020 Taxes

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Written by: Caroline Wetzel, CFP®, CDFA®, AWMA® | Procyon Private Wealth Partners, LLC

Are dollars, documents and deductions on your clients’ minds this month? Even if they trust their tax preparation to a professional, here are some quick tips that are particularly relevant given the changes that have taken place over the past year:

  1. They get an extra month:  May 17, 2021, is the new deadline to file their 2020 federal income taxes.
     
  2. The deadline for their 2020 state income tax filings may not be the same as the 2020 federal income tax filing deadlines. They should check with their states on their exact deadlines. For example, in Arizona the deadline in April 15, and Hawaii has a deadline of April 20. 
     
  3. May 17 is also the new deadline to make 2020 contributions to Roth IRAs, traditional IRAs and health savings accounts (HSAs).
     
  4. April 15 continues to be the deadline for making 2021 estimated tax payments for the first quarter of the year.
     
  5. If their 2020 income is much lower than 2019 or they’ve had a child, they should consider filing their federal income taxes sooner rather than later. Stimulus payments and tax benefits related to the American Rescue Plan (ARP) are based on their most recent returns. So, if their 2020 situation is (much) different from 2019, they may be eligible for new benefits.
     
  6. If their 2020 income is much higher than 2019 they may want to wait to file their federal taxes until they have their stimulus payments in hand.
     
  7. If their 2020 Adjusted Gross Income (AGI) is less than $150,000 and they received unemployment compensation last year, the first $10,200 of their benefit is not taxable on the federal level.
     
  8. Even if they take the standard deduction, the 2020 CARES Act allows them to take an above-the-line deduction of $300 for a cash donation to a public charity.
     
  9. When collecting details for their income tax returns, they should remember any income they made on the side. While not all money they receive (like gifts of $15,000 or less) is taxable, some often-overlooked side income that does need to be reported includes canceled debt and cash from side gigs.
     
  10. Remember the critical "DCDs": Dependents, Credits and Deductions! The IRS defines dependents as "qualifying child" or "qualifying relative." For help determining who qualifies as a dependent, the IRS has an interactive questionnaire. Depending on the type of support your clients provide these individuals, different credits and deductions may be relevant, especially following the passage of the ARP.

Related: Tax Hikes are Coming