End-of-Year Individual Tax Planning Checklist for 2020 Income Tax Return

A tax planning checklist for individual taxpayers

With the 2021 tax season fast approaching, taxpayers need to start preparing for the season. There are certain things individual taxpayers can do before the end of the year to prepare and be ready to file their 2020 income tax return.

The following tax planning checklist will help individual taxpayers prepare for the season by detailing the documents they would need to collect prior to filing their 2020 income tax return.

☐ Make an inventory of all the income received in 2020 and the sources of said income (i.e., salary, services fees, retirement plans payments, interests, and dividend payments etc.).

☐ Prepare a list of all the tax documents (informative returns) necessary to evidence all the income items and expenses that will be necessary for the return preparation, including, but not limited to:

☐ W-2s: Form 499R-2/W-2PR Withholding Statement (W-2) for wages

☐ Forms 1099 (MISC), 480.6A, 480.6B and 480.6D: Informative returns for other income (such as interest, dividends, professional services etc.) 

☐ Form 480.6SP: Informative Return for services rendered for self-employed individuals. These returns are due next January 31, 2021.

☐ Form 1098 or 480.7A: For any mortgage interest paid during the year

☐ Form 1098E: For interest payments on student loans

☐ Any donations to non-for-profit charitable organizations must be made before the end of the year to deduct the donation with the 2020 income tax return.   

☐ Deductible IRA and educational contribution account contributions must be made before January 31, 2020, to be deductible in the 2020 income tax return.

Furthermore, individuals who are self-employed should also do the following additional steps:

☐ Verify the total estimated income tax payments made to the Puerto Rico Treasury and the IRS up to date and make any adjustments necessary for the last payment of estimated taxes due on January 15, 2021.

☐ Coordinate with service providers of insurance policy, telephone, cable, and internet services to receive a Form 480.7F evidencing the payments made for each of those services during 2020. These informative returns are due on January 28, 2021 and are required by the Puerto Rico Treasury Department to claim an income tax deduction for such payments for the alternate basic tax computation.  

☐ Discuss with your tax advisor the potential need of Agree Upon Procedure (AUP) to claim all business expenses in the 2020 income tax return, and the scenario of electing the optional tax rates introduced by Act 257 of 2019. 

For example, the optional tax could be a flat 6% for self-employed individuals with gross income not greater than $100,000 and 10% for gross income in excess of 100,000 but not greater than $200,000, subject to compliance with other requirements.

☐ Finally remember to inform your tax preparer of any changes in basic information such as mailing and email addresses, country of residence during the year, dependents, and civil status, as it is determined based on your situation on the last day of 2020.

Please contact our tax advisors at (787) 751-6164, or email us at [email protected] for help filing your 2020 income tax return.

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