Doing Taxes in 2020 - 5 STEPS YOU SHOULD BE TAKING TO FILE TAXES IN 2020 - TURBOTAX **Note: You can follow along using the Google Sheet link here:
1. Understand Your Gross Income. This is typically found on your W2 or 1099. If you're a business, you'll need to fill out the form Schedule C: (All of this should be easily done within TurboTax)
2. Understand all of your deduction opportunities. You've got to understand if you're going to use the Standard Deduction or an Itemized Deduction. Standard: Tax reform almost doubled the standard deduction in 2018 to $12,000 for singles and $24,000 for joint filers. The amounts rose in 2019 to $12,200 and $24,400 respectively. It's important to understand that as a deduction rather than a credit, the standard deduction only saves you whatever your tax rate on the amount would've been. Nevertheless, with tax rates ranging from 10% to 37%, a $24,000 standard deduction can save you $2,400 to $8,880 on your tax bill. This does vary between Federal, State and Local taxes, so be sure to do additional research when filing. Common deductions are:
a. PORTFOLIO INVESTMENT DEDUCTIONS. This includes deductions you get from eligible retirement accounts (401K and Traditional IRAs), children savings accounts (529s), and capital losses(1099b). There is also the 457b. This is for designed people who are employed by s state or local government, so not everyone can do this one. With a 457B plan, you can contribute up to $19,000 per year and reduce your taxable income by that amount - exactly the same as with the traditional 401k. However, the benefit to a 457 plan is that you don’t need to wait until the age of 59.5 to withdraw that money…you can withdraw it at ANY age, upon retirement, with zero penalties. This is typically something utilized by firefighters, police officers, and teachers.
b. MEDICAL DEDUCTIONS. This commonly includes the cost of health insurance premiums, FSAs, HSAs, etc.
c. REAL ESTATE DEDUCTIONS. This would include items like your home mortgage insurance and property taxes.
d. CHARITABLE CONTRIBUTIONS DEDUCTIONS. This would include any giving to 501c(3)'s (e.g. churches)
e. FAMILY DEDUCTIONS. This would include items like alimony or child support.
f. BUSINESS LOSS DEDUCTIONS. This would include your net operating loss as reported on your Schedule C. You'll need to complete a profit and loss statement to understand your losses, but you should be sure you're deducting everything. This includes your allocations for some items typically paid for under personal expenses (e.g., rent, utilities, phone, etc.). Ensure you're appropriately allocating based on usage.
3. Identify Your Tax Bracket. Use Publication 15, Table 7 to identify which tax bracket you're in after understanding your adjusted gross income (AGI).
4. Understand all your tax credit opportunities. Do research to understand the most common (e.g., Earned Income Tax Credit, Child Tax Credit, American Opportunity Tax Credit, Adoption Tax Credit, Savers Tax Credit, Lifetime Learning Credit, etc.).
5. Find out which method for filing is right for you: Filing yourself, or using a tax professional.
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