Doing taxes in 2020: A step-by-step guide
Mar 19, 2020
Yes, it’s true that filing taxes is not how you wish to spend your afternoon. But look at the bright side. You can get a big return. Some people even say that doing taxes on their own empowered them to do more in their lives.
There are also security concerns. Tax documents have always been a target for hackers. Securing your files and filing yourself boosts your privacy. Plus, until you get it done, you’re prone to tax fraud — an attack when someone applies for a tax return on your behalf.
With the April 15th deadline for the 2019 tax returns fast-approaching, it’s better to take care of it right now. We’ve prepared a step-by-step guide to take you through the process.
Step 1 - Who needs to file a tax return?
According to the IRS, whether you have to file taxes depends on your filing status, age, and dependency status.
But at the end of the day, you are always better off filing.
First, the penalty for not filing can rack up quickly. It starts with 5% of the tax you owe but can go up to 25%. And even if you file and end up having to pay, you can make a payment plan. The penalty for late payment is 10 times lower than the penalty for not filing. You'll also know to adjust your withholdings for next year.
Step 2 - What you will need
First, you'll need to gather all the important documents. For some, the W-2 form will suffice. But if you donated to charities, contributed to your retirement, got married, or had children, you will need a few more documents.
- Your Social Security number
- W-2 form from your employer
- Contributions to the RSA
- Medical bills
- Information on the state and local taxes you've paid
- Your mortgage information and property taxes
Note that to ask for reimbursement for transportation, medical bills, etc., you need to provide evidence like canceled checks and receipts.
Step 3 - Doing your taxes on your own or hiring a tax preparer?
Now, the big decision is whether you should do taxes on your own or hire a professional. Each year, more people decide to file taxes on their own. Last year, out of 155 million tax returns filed, over 88% were filed electronically, of which 57 million were filed individually.
The rest of this article will focus on filing taxes on your own, but here's something to note even if you employ an accountant. If you're going to send over data to someone, make sure you protect your files with encryption first. Accounting firms are prime targets for hackers.
Lastly, you can turn to IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) program for free tax prep services. You qualify if you earn $56,000 or less, have disabilities, or are older than 60.
Step 4 - Itemize or Standard deduction
Last thing to consider is whether you should file for a standard deduction or file an itemized list. According to the IRS , over 68% choose a standard deduction.
If your deductibles exceed $12,200 for single filing, or $24,400 for joined filing, you should go for an itemized list.
Consider the following:
- Education costs
- Donations to charities and nonprofits
- Medical bills
- Mortgage interest
Make sure to check what state tax deductions are available in your area, as well.
Step 5 - Filing an itemized list
Filing an itemized list can seem intimidating. People generally think that doing your own taxes is only doable if you're going for a standard deduction. Not true. Filing taxes online can be easy with software like H&R Block and TurboTax. These apps guide you through the filing process even if you’re working with an itemized list. And if you get into trouble, there's live support to help you.
Step 6 - A system to help you next year
Once you're done with your taxes, you may feel the urge to open a bottle of champagne or even something stronger. Not so fast. While you're on a roll, set up a system, so that next year filing taxes becomes even easier.
Note: The IRS requires you to store all documents used for tax credit or deduction for three years. The good news is that they also accept digital copies. So, you don't have to worry about receipts blurring out or having to rummage through a pile of documents to find that one two-year-old receipt.Here's a simple system you can use. It works best if you set up a regular habit, like digitizing all receipts from the prior week.
a) Take a picture of your receipt — use your phone to snap documents as soon as you receive them.
b) Send the photos to your computer for easy organization.
c) Name each receipt. We recommend using date_expense_type format, because you don't need to separate your documents into 12 different folders.
d) Open NordLocker and encrypt your documents. Tax documents can give away a lot of personally identifiable information, which is why you should never leave them on your computer or the cloud unencrypted.
Another reason to use NordLocker during the tax filing season is malware. Sometimes it’s built to find and retrieve tax return documents like .tax2016, .tax2017, etc. However, even if malware gets into your or your accountant’s computer, it won’t be able to find any since they’re encrypted with NordLocker.
e) Repeat this process every week and, when the next tax season is up, you'll be ready to file like a pro.
Do you know anyone who still hasn’t filed their tax returns? Maybe someone you know doesn’t take document privacy as seriously as they should?
If you know someone who is yet to file their taxes for 2019, share this article by clicking on the social buttons below.
John believes that the best things in life are simple. He uses the same approach when he’s writing about online security. John says that his #1 pet peeve is phishing scams. Ironically, his favorite non-work related activity is fishing.