I finally filed my 2020 taxes after filing for an extension last May. I hoped for additional tax changes related to the pandemic, making it advantageous to hold off filing. I would have been fine filing in May.
As with every tax year, I learned new things, mostly about how I could reduce my taxes in the future.
My Tax Filing Process
Years ago, I built a spreadsheet that has tabs for every tax form that I file. Maintaining the spreadsheet helps me understand exactly what’s going on with my taxes.
I’m not a CPA. I like having another source of information to uncover areas where I might be making a mistake. I created a dummy TurboTax account where I enter anonymized versions of my tax forms. I then compare TurboTax’s 1040 summary with my calculations. I generally find one or two areas where I need to focus on. Once I’m pretty sure I got everything figured out, I head over to the Free Fillable Tax forms and enter everything in and submit my taxes for free.
I’m opposed to paying TurboTax’s filing fees. I find them partially culpable for why our taxes are complicated as they are.
Yes, my process takes more time, but frankly I kinda enjoy all the math and spreadsheet work. Yeah, I’m sick and need a hobby 🙂
This year, I found TurboTax made a couple mistakes. The first was with the $300 charitable contribution that Congress added as part of the pandemic response in early 2020. When I entered the contribution into TurboTax, it never showed up on the 1040. To fix it, I had to completely remove the charitable contribution and reapply it. It then showed up like I expected. Bona fide bug.
The second issue was around a Roth recharacterization that I did in February, 2020. I had contributed too much during 2019 and recharacterized it before I filed my 2019 tax return. It could have been user error or TurboTax having old data from when I used it for my 2019 taxes. Near as I can tell, I did everything correctly. However, TurboTax still reported that I owed a 6% excise tax on having contributed too much and informed me that I’d need to amend my 2019 return. I knew this was wrong because I had already corrected it before filing my 2019, by adding Form 8606. I suspect this is a garbage-in/garbage-out problem.
The last issue was odd. I put in my only W2 and TurboTax informed me that my W2 was wrong and that I should expect a corrected W2-C from my employer. Searching online, this looks like a bug in TurboTax. It was apparently fixed later, because when I used TurboTax in late September, it no longer reported an error.
Even TurboTax gets it wrong. The first two errors would have cost me extra by using TurboTax.
2020 Filing Summary
- 5 child tax credits, 1 dependent credit
- Even though 2020 was a skip year in my charitable contribution bunching, I still made a $300 cash charitable donation to maximize my standard deduction+charitable contribution
- AMT Tax Credit: $0, carryover into 2021: $1,436. I’ll need to keep filing form 8801
- Ordinary Dividends: $1,407, Qualified: $953 – Up 25.8% and 16.8% from 2019 respectively
- Interest: $3,239 – Up 227.3% from 2019; down 14.5% if you exclude the savings bonds
- Capital Gains: $56 – Down 92% from 2019. Despite harvesting tax losses in March 2020, selling call options on DumpsterFire Inc put me up.
Things I Learned or Rediscovered
How easy it is to file for an extension. 2020 was my first time filing for an extension. Knowing I was going to owe money, I paid in May what TurboTax said I would owe, suspecting I’d get a little back if I could determine TurboTax was wrong by the time I filed.
How Series I Bonds are Taxed: I bought some I bonds in both 2010 and 2013(?) and decided to simplify my life by selling them in 2020. The income on Series I bonds is taxed at the federal level but tax exempt at the state level. I had to back them out of our income for our Virginia filing. I also discovered that the interest could be tax exempt if when coupled with education expenses (yeah!) but that we were out of the income range to qualify for this benefit (boo!).
17 year-old Children Now Qualify for Child Tax Credits. Previously, during the year that a child turned 17, they no longer qualified for the Child Tax Credit. I learned this sad truth when my oldest turned 17 during 2019. But happily, the rules changed during 2020 so I get one more year out of my other children.
Converting My Wife’s Traditional IRA Saved on State Taxes. I converted my wife’s 2019 traditional IRA contribution into her Roth IRA instead of rolling it into her 401(k). I had saved $798 in federal taxes and $209 in state taxes by deducting the contribution in 2019. By rolling it over in 2020, I reversed that, paying $1,078 in federal taxes and $258 in state taxes. However, what I learned this year is that it caused us to qualify for the Spouse Adjustment Tax, reducing our 2020 Virginia tax bill by $128.
My tax return shrunk by 3 pages during 2020 to 20 pages. Our 2021 tax return will probably be about the same size. If Congress axes the backdoor Roth, our 2022 taxes could get a whole lot smaller. We’d drop four pages by no longer needing to file form 8606. And if I end up being able to recapture all of the AMT Credit during 2021, that will drop another four pages, bring our 2022 tax return to 12 pages.
Any other items you’re curious about from our 2020 filing? Drop your question or observation in the comments.