It’s that time of year again! Unfortunately, I’m not talking about the holidays. The 2021 tax season is about to begin, and because of the COVID-19 pandemic, things look a little different this year.
Thankfully, the process for filing taxes online is simpler and more secure than ever. A record number of filers are expected to take advantage of the online option due to social distancing. By filing online, you can ensure the IRS has all your pertinent tax information without even having to leave your home. Better yet, reliable online tax tools offer benefits such as W-2 and 1099 importing and deduction information.
Long gone is our parents’ experience of late nights toiling away at the dinner table with a calculator, pen, and paper to get tax returns completed and postmarked by Tax Day. Let’s explore how to file your 2020 taxes, including the best steps for filing taxes online.
What You Need to Know About Filing Taxes for 2020
The two most important things to know about filing a tax return are (1) the filing dates and (2) your filing status. Choosing the correct filing status will ensure you pay the appropriate amount in taxes and get you the biggest refund possible. Here’s what you need to know:
Dates for Filing 2020 Taxes
Because of the pandemic and stimulus payments still being sent to millions of Americans, the IRS has pushed back the start of tax season by about a month. This means that the IRS won’t accept any federal tax returns until February 12th, 2021. Even if you use tax software or service to file early, those returns won’t be given to the IRS until that date.
However, while tax season is starting later than usual, the filing deadline remains April 15th, 2021.
If you can’t file your taxes by April 15th, 2021, you can file an extension request through the IRS website. The extension remains a six month period, meaning that your final due date would be October 15th, 2021. Remember, you may be subject to hefty tax penalties, so my recommendation is to file by April 15th and, if necessary, file an extension for the October 15th deadline only in the case of extreme circumstances.
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What is My Filing Status?
The status you choose on your tax return can determine the tax you owe for the year as well as the refund you receive, so it’s important to file the right status. In some cases, there may be more than one status that is applicable to you. When this happens, the IRS guideline is to “choose the one that allows you to pay the least amount of tax.”
The five options are:
- Head of Household
- Married Filing Jointly
- Married Filing Separately
- Qualifying Widow(er)
Single Filing Status
If you aren’t married, then the Single filing status is likely the right choice. This also applies to those who are divorced or legally separated under their state’s law.
Attention: newlyweds! The Single filing status applies to the last year's last calendar day for those who are recently married. In other words, if you were not married by December 31st, 2020, then your status for your 2020 tax returns will be “Single.”
Head of Household
If you are unmarried (legally “Single”) but have been taking care of a dependent, such as your child, then you may be eligible for Head of Household (HOH) filing status. It is important to note that the dependent must live with you for more than six months of the year.
Even if you are married, you can be considered “unmarried” without a finalized legal divorce or separation. For example, if you and your ex did not live together during the final six months of 2020, then you may qualify for Head of Household. It is important to note that a temporary absence, such as living abroad for business reasons, does not count if your spouse intends to return home.
Married Filing Jointly
Other than being married, there’s no distinguishing qualification between Married Filing Jointly or Married Filing Separately. Whether to file jointly or separately is up to you and your spouse, but you must both agree to the same filing status for the year. In other words, one spouse can’t file jointly for 2020 while the other one files separately for 2020. You can alternate these statuses in different tax years but must use the same status in the same calendar year.
So why file jointly?
This is the standard IRS recommendation for most married couples. With the exception of a few circumstances, filing Jointly is more tax beneficial. For example, the standard deduction is nearly twice as high on joint tax returns than for those who file married but separate. Specifically, the standard deduction is $24,800 for joint filers compared to $12,400 for single filers. Those who file as head of household enjoy a standard deduction of $18,650.
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Another benefit to filing Jointly is that the tax brackets are higher. For example, for couples who are Married Filing Separately, the 22% tax rate is bracketed at incomes between $40,126 to $85,525. Compare this to Married Filing Jointly, where the 22% tax rate bracket is higher at taxable incomes between $80,251 to $171,050.
Married Filing Separately
If it’s more beneficial to file jointly, then why consider filing separately at all?
Most people who file separately do so for reasons other than direct tax benefits.
For example, income-driven student loan repayment plans are based on earnings. In this case, filing separately allows your income-driven student loan payments to be based on only your income instead of the incomes of both you and your spouse combined. Depending on your situation, the decrease in monthly student loan payments could outweigh the tax benefits you’d lose from not filing jointly.
Another situation is if you or your spouse had major medical expenses in 2020. Depending on the medical expenses, some of those costs can be claimed as deductions. Finally, filing separately might be advantageous if your joint incomes would bump you into a higher tax bracket.
In the event of a tragedy that resulted in a spouse’s death, you can qualify as a widow(er), even if you don’t have a dependent.
With this status, you will benefit from the same standard deductions and tax benefits of married couples filing jointly. In most cases, you will be able to claim the qualifying widow(er) filing status for a total of two years. Once those two years are up, then you will need to select either single or head of household, assuming you haven’t re-married.
How to File Taxes
There are a few different ways to file your taxes in 2021.
- Paper returns. One way to file your taxes is by sending in a paper return. That’s still a good way to file your returns for free. But paper returns can be cumbersome, and it may take longer for you to receive any refund you’re owed. The pandemic has slowed down post office delivery times and resulted in many government agencies, including the IRS being understaffed.
- Hiring a tax professional. If you have a complex tax situation or are a new, first-time business owner, hiring a tax professional may be a smart move. The downside? It’s a lot more expensive.
- Filing taxes online. Using online tax software is a happy medium between the two. Sure, you’ll have to pay a fee to use a software, but it’s still cheaper than hiring a tax professional or accountant. For most people, using a tax software service such as TurboTax, TaxSlayer or H&R Block will save you time and maximize your deductions!
- File directly online through the IRS. Free File is now open for earners with an adjusted gross income of $72,000 and below! Free File does the hard work of paying your taxes by utilizing brand name software. The IRS website states that Free File allows you to “prepare and file your federal individual income tax return for free using tax-preparation-and-filing software.” If you earn more than $72,000, you won’t qualify for Free File. Instead, you can use the IRS’ Free File Fillable Forms, which will open on February 12, 2020. These are electronic federal tax forms that should only be used if you are “comfortable doing your own taxes.”
While it is still possible to file taxes through paper returns, the IRS is encouraging everyone to file online. On January 15, 2021, the IRS released a statement saying, “Overall, the IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit if there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.”
Below, I highlight the various options available to file your taxes online in 2021!
How to File Taxes Through IRS Free File
The IRS Free File program is an extensive public-private partnership between the IRS and leading tax preparation companies. Through this partnership, these brand name companies do not charge a fee and instead help you file your federal income online tax for free. More information about the IRS Free File offer can be found here.
For those with an income of $72,000 and below, there are almost a dozen IRS Free File offers available. Some of the brand name software you can use for free include TaxSlayer, FreeTaxUSA, and TaxAct. The IRS will also help you determine which option is the best for you. I recommend filling out the “Filter By” form at the top of the page.
In order to get started with IRS Free File, all you need is an email address, a copy of the prior year’s tax return, and documentation for your income and deductions.
If you earn more than $72,000, then you will have to wait for Free File Fillable Forms to become available on February 12, 2021. The fillable forms require that you are comfortable doing your own taxes.
The good news is that if you are not comfortable filing your own taxes, there are still online software options available for those with an adjusted gross income of $72,000 or more!
Other Online Tax Filing Options
If you earn over $72,000 and need guidance on your taxes, there are still other online tax filing options available! Even if you earn less than $72,000 and qualify for IRS Free File, you may have specific tax questions or a complicated situation that you would like answered by a professional.
Whatever your situation, there are still commercial tax softwares available. The best part? Many of them even offer free tiers of service!
Below are some of my favorites:
TaxSlayer is an online tax service with four tiers of service, along with the option to file a state income tax return if needed. There is also a free, basic plan. Both single and married filers can qualify for the free plan. You must also have no dependents, earn less than $100,000 a year, and not own a business, rental properties, or investments.
If you don’t qualify for the free plan, the next option is Classic, which works for most filers. For those who want better support, audit assistance, and access to tax professionals to answer any questions, then you’ll want to select the Premium plan. Finally, there is the Self-Employed tier that offers more specialized support for those running their own business.
TaxSlayer allows you to start your federal income tax return for free online. Don’t worry: if you need help along the way, you can always upgrade tiers to the appropriate one that suits your needs without losing your place. It’s important to note that the “Ask a Pro” service is only available for the Premium and Self-Employed tiers.
One of the reasons I recommend TaxSlayer is because of their maximum refund guarantee. If another tax software provider calculates a higher return based on the same data, then TaxSlayer will refund the purchase price you paid. Furthermore, if you are receiving a tax refund, you don’t even have to pay out of pocket for TaxSlayer! They can collect it directly from your refund for a small fee. Visit TaxSlayer to see if it is the right solution for you.
H&R Block Online
Another tax software I highly recommend for 2021 is H&R Block Online.
If I’m being honest, the IRS website is a little clunky and difficult to navigate. This is one of the many reasons people avoid doing their taxes online. H&R Block Online eliminates that concern with an intuitive, clean, and easy-to-use interface. It’s as simple as snapping a picture of your W-2 and allowing the software to import your tax information!
H&R Block Online can handle every tax situation, from the basic to the complex — like self-employment or rental property income situations.
There are four tiers available, including a Free Tier for students, parents, and traditional W-2 employees. The nice thing about H&R Block Online is that no matter which tier you select, you have the option to purchase an “Unlimited Help” Online Assist add-on for just $39.99. This add-on allows you to get unlimited help from a live tax expert, not an automated system. These experts are available to answer any questions you may have about your taxes or the software itself.
Worried about an audit from the IRS? With their Peace of Mind Extended Service Plan, you can get audit representation for the life of your tax return. See if H&R Block Online is right for you.
TurboTax is one of the most reputable names in the tax filing industry — and for good reason! Over the last 30 years, they’ve been regularly named as the #1 best-selling tax software in America. They have a 100% accuracy guarantee. This means that if TurboTax miscalculates your taxes and you have to pay an IRS penalty, state penalty, or interest, then TurboTax will reimburse you for the penalty.
TurboTax is also extremely mobile-friendly, allowing you to snap a photo of your W-2. The software automatically analyzes the photo and securely pulls your data into all the appropriate tax forms for you. Finally, every return filed by TurboTax comes backed with Audit Support Guidance, meaning that you can get free one-on-one guidance from a tax professional. If you have more questions, you can also utilize SmartLook to “connect with a TurboTax specialist through one-way video and get answers to your questions and guidance right on your screen.”
What will my tax return be?
While filing taxes can be stressful, there is one bright side: you may qualify for a tax refund! Here’s how to estimate what your tax return for 2020 will look like.
Tax Refund Calculator 2020
Though the IRS does have a Tax Withholding Estimator, they don’t provide a tax refund calculator. Fortunately, there are many tax refund calculators available online.
For example, with H&R Block’s tool, you can get a tax refund estimate in minutes by just answering a few simple questions. The other commercial tax software options offer tax refund calculators, too. Knowing what to expect can help you plan your budget in advance!
Where’s my federal tax refund?
The IRS says that most refunds are sent within 21 days, but it is not uncommon to have a refund in as little as six or seven days. Filing online is much faster compared to mailing in your return, as mailing time and physical processing can cause significant delays, especially during the pandemic. No matter how you file, you can check your IRS tax refund status by visiting IRS.gov/refunds or by downloading the IRS2GO app to your mobile device.
The IRS will begin providing daily updates on your IRS tax refund status 24 hours after you e-file or four weeks after your file by mail. In order to see your return status, you’ll need to provide your Social Security number, your filing status, and your exact refund amount.
Most tax software companies provide IRS tax refund status updates. So if you used commercial software, like TaxSlayer, H&R Block Online, or TurboTax when filing for taxes online, logging into your account may be your fastest way to get refund updates.