Easy Tax Prep Guide For 2020
This step-by-step guide is for employees at companies and freelancers to tax prep correctly and efficiently. Read now and get your taxes done according to IRS standards with a tax professional! In 2020, tax prep must be done until April 15th. Learn in this guide the forms you need to get your taxes done without stress! Find an expert tax professional to guarantee you file your taxes correctly and efficiently.
Tax day! April 15th is a day all Americans dread. It’s the deadline to do their taxes and hope everything goes well! If you make a mistake during tax prep, you might end up being audited by the Internal Revenue Service (IRS) and be fined.
That’s why hiring an expert tax professional is the best way to file your taxes. Taxes are daunting, complicated, and easy to mess up. If you wish to do your taxes with 100% certainty, it’s highly recommended to hire a tax professional. And before starting, there are a couple of documents you may need.
Tax prep for employees in 2020: step by step
Fortunately, if you are an employee for a company, paying your taxes is a streamlined process. The company already covers half of your Social Security and Medicare taxes, which means less for you to pay until April 15th, 2020.
6 steps for tax prep as an employee
Pay close attention to these steps to do your taxes correctly, depending on your income.
#1 Review your W-4 form
The W-4 form is a file you fill in when a company hires you. It has personal details, your marital status, and lists the exemptions you wish to be eligible for. Since things can change in your life on a year to year basis (like moving address, for example), it’s important to check if all the details on the W-4 form are still up-to-date.
Filling this form correctly ensures you do your tax prep correctly and don’t mix up anything by accident. To update your W-4 form, simply download it from the IRS. Fill it in, then deliver it to your employer.
#2 Receive your W-2 form from your employer
Your employer is obliged to send you by post until January 31st, a W-2 form. This form contains details such as your Employer Identification Number (EIN) and wages. Once you receive this form, keep it safe - you’ll need it to pay your taxes.
#3 Organize other forms for interest, stock, and education expenses (if applicable)
If you receive income from interest or stock dividends, you’ll also receive forms that must be sent to the IRS. The same applies to unemployment benefits and education expenses.
Here is a list of forms you may receive for your tax prep:
- 1099 INT (interest income)
- 1099 DIV (stock dividends)
- 1099 G (state income tax refunds and unemployment benefits)
- 1098 T (education expenses)
Just like the W-2 form, keep these forms safe as soon as you receive them. If you’re supposed to receive one of these forms, but it doesn’t arrive at the start of February, contact the institution and ask for it. For example, if you pay for college, you should ask the 1098 T form if it doesn’t arrive.
#4 If you itemize your deductions, you must fill in a Schedule A form
If you had medical expenses or donated to a charitable organization last year, you might save money if you fill in a Schedule A form. This form allows you to itemize deductions from your tax.
#5 Once you have all necessary forms, prepare your tax return with software or a professional tax expert
After you’ve completed the previous steps, it’s time to tax prep. You can do this with a professional tax expert! Professionals are recommended if you are unsure about certain aspects of your tax prep (such as a deductible or education expenses) and don’t want to risk an audit.
How to tax prep with a professional expert
If you are insecure with your tax prep (most people are), you can hire a professional to make sure you do the process correctly.
These are your options of professional tax experts:
- Certified Public Accountants (CPAs)
- Enrolled Agents (licensed by the IRS)
- A tax preparer from a national chain
- Expert Tax professionals online
#5 Don’t miss the April 15th deadline
No matter which method you choose, you have to send in your tax file until April 15th, 2020. This can be done with software, a certified tax professional, or even by mail. You can request a 6-month extension if needed by filling out form 4868. Keep in mind that this is an extension to submit certain documents - not the payment itself. That means you need to know before April 15th anyway how much you have to pay.
Tax prep for freelancers in 2020: step by step
If you are a Freelancer, you fall into the Sole Proprietor category of the IRS. Tax prep for a freelancer isn’t as straightforward as for employees. The IRS treats you as Employer & Employee, meaning you must submit appropriate forms for both. Mistakes are common, so it is highly recommended as a freelancer for you to hire a professional. A tax expert can even help you save money by identifying precise deductibles specific to your freelance work.
#1 Hire a tax expert
The best way to tax prep as a freelancer is to hire a tax professional that will assess your case personally to help you deduct expenses. To find qualified income tax help now, check out the links at the start of this article for a tax professional!
#2 Submit 1099-MISC forms by clients
Any client that paid you more than $600 a year for products/services must send you a 1099-MISC form. In case you don’t receive this form, you should contact your client and request it. A tip for freelancers is to keep your payments organized. Online platforms such as Quickbooks can help you with this.
A good habit is to register online on Quickbooks (or other software) all monthly payments on the last day of each month. This avoids you having to organize everything at once in January every year. Some people use Microsoft Excel or Google Sheets for this.
#3 Pay your Quarterly Estimated Taxes
Since the IRS treats you as an “employer”, they ask you to submit quarterly estimated taxes - just like regular businesses do. A regular employee never has to worry about this, but in your case, you’ll have to send in these quarterly estimated taxes on the following dates:
- April 15 (first quarter)
- June 15 (second quarter)
- September 15 (third quarter)
- January 15, 2021 (fourth quarter)
You’ll submit these quarterly estimated taxes with form 1040-es. The form contains vouchers for you to pay the taxes online or through the mail.
#4 Fill in a Schedule C form to cover Social Security and Medicare
Since the IRS considers you to be an Employer and Employee as a freelancer, you must pay taxes as both for Social Security and Medicare. This adds up to a 15.3% tax rate, and you can pay it with a Schedule C form. Remember that self-employment tax is different from income tax. That means income tax exemptions DO NOT apply to self-employment taxes (social security and medicare).
Now you know how to tax prep! Remember to sort out your forms, calculate your expenses precisely, and apply deductibles when applicable. April 15th is always a dreaded date for Americans, but with planning, you can tax prep safely. Search online to find an expert tax professional now!