This tax season might be more confusing than ever with a stimulus payment and/or unemployment factored in. Thankfully, there are a few things you can prepare for now so you get the most out of your tax return.
Thanks to the coronavirus relief bill, you can be eligible to reduce your income by up to $300 for charitable contributions made this last year – just make sure you have the proper documentation for any of those cash, check, or credit card payments.
A special line is reserved for a “recovery rebate credit”, so if your 2020 tax return has a smaller Adjusted Gross Income (AGI) than the one used to calculate your initial stimulus payment, or if you have additional dependents, you may receive the credit.
If you were impacted by COVID-19 – quarantined, furloughed, laid-off, hours reduced, etc. – you can qualify for a retirement plan provision that includes no 10 percent penalty if you take a distribution under the age of 59½; however, the distribution will be spread over three years and must be repaid in that timeframe to avoid taxation.
Check withholding. This is the amount withheld by an employer that acts as partial payment of income tax; according to the IRS, most employees are over-withheld, which results in a refund.
Opt for electronic. By combining direct deposit with electronic filing, you’re more likely to get your refund fast (and avoid it getting lost, stolen, or unable to be delivered).
Stay organized. Keep all of your paperwork in one place so it’s easily accessible for tax prep time.
Get help. Low- and modest-income Rhode Islanders may qualify for free help from Volunteer Income Tax Assistance (VITA) when it comes to filing and applying for tax credits. Check EconomicProgressRI.org for locations.