“Do it right”: still haven’t filed your taxes? 7 last-minute tips for surviving a tough tax season
This is the critical time – as in, time to finally do your math if you haven’t already, because Tax Day is less than a week away.
Every tax season has a final push and it looks like it will be the same before this year’s federal income tax deadline, which is Monday, April 18 for most people.
At the beginning of April, the Internal Revenue Service received more than 91 million declarations. It expects to obtain more than 160 million returns in 2022. The tax agency expects some 15 million extension requests to be filed by October 17. Put it all together and it shows the number of people expecting to deposit in the next few days.
Filing on the wire is common, but this year has some special twists. Even as the pandemic recedes from everyday life, its tax implications are front and center. That’s because federal lawmakers early last year made changes to the tax code to put more money in families’ pockets at a crucial time.
Some of those provisions, like stimulus checks and child tax credit payments, led to immediate gains last year. Others, like the enhanced child care and dependent care credit and the earned income tax credit, were designed to come during the 2022 tax filing season — in other words. , during the drop-off window that closes most locations on April 18. (For Maine and Massachusetts taxpayers, the deadline is Tuesday, April 19 due to observance of Patriots’ Day in those states.)
“A person now accelerating a return could ignore qualifying credits and leave money on the table.”
Someone who fast-tracks a return now could ignore qualifying credits and leave money on the table that some say contributes to richer refunds in 2022.
The average repayment, at the beginning of the month, was $3,226, or 11.5% more than last year. For example, just one-year changes to the earned income tax credit could unlock additional taxes for about 2.8 million senior taxpayers, according to AARP.
A sprint could backfire in another way. If there is a mistake, IRS pending administrators say it will delay the refund. In January, IRS Commissioner Charles Rettig warned frustrations could be part of this year’s filing season.
“Do it right. Don’t file it guessing and guessing because the IRS is going to take forever to process these,” said David Tolleth, president of the National Association of Enrolled Agents.
For anyone with big open questions about what they are entitled to, the best thing is now to file for an extension, he said. In his own practice, Tolleth now clocks 12-hour workdays as he deals with “clients who are coming out of the woods”.
Here are 7 tips to make the process smoother:
1. Ditch the paper
The fastest way for the IRS to process a return and issue a refund is when taxpayers file their return electronically and allow direct deposit. About 96% of tax returns this year were filed electronically, Rettig said at a recent congressional hearing. Turnaround time is usually less than 21 days, or even sooner, he added.
Paper returns are bogged down due to the IRS’ labor-intensive ways to transcribe and process — and it’s a “first in, first out” system, Rettig said. That means the IRS must process 2.7 million paper returns received last year before it can work on the 2.3 million paper returns received so far this year.
2. If you want to drop an extension, don’t be shy
The IRS expects 15.2 million households to file for extensions this year. This is accomplished with a so called Form 4868 which can be filed electronically for free. Remember what you have wiggle room for: extra time to file a tax return until October 17, not extra time to pay a tax bill.
The IRS will work out installment plans with taxpayers who do not have the cash available to pay their bill. But the financial penalties surrounding failure to file a return, or at least an extension by April 18, outweigh the penalties and interest associated with failure to pay.
The penalty for non-payment is 0.5% of unpaid taxes “for each month or part of a month that tax remains unpaid,” the IRS notes. But it’s 5% in the same period for a declaration failure.
Tolleth has heard people say they’re worried about owing debts they can’t afford now, so they’ll skip the deposit for now on the worry that they’ll have to pay too. Wrong move, he said. “Make all the payments you can” as this will reduce penalties and interest. “Make sure you file an extension,” he added.
3. Still waiting for last year’s return to be processed? Try the $0 trick
Taxpayers waiting for their 2020 tax return to be processed must still file their 2021 return by the upcoming deadline or request an extension, according to the IRS. For information on the amount of last year’s adjusted gross income, enter $0, the agency says.
This is a special note for people who do their own taxes, submitting them electronically. They will need to sign and authenticate the return. One way to do this is to include last year’s adjusted gross income.
This is where you enter $0 for last year’s adjusted gross income to continue. Tax software typically places this information for repeat customers, but you may need to manually enter the $0 or do so for a first-time-used product, according to the IRS.
4. Accurately state your Child Tax Credit and Economic Impact Payments
In 2021, the IRS has already issued a third round of stimulus checks and six monthly advances of the Enhanced Child Tax Credit to households. Tax time 2022 is when the IRS faces taxpayers and determines what people still owe for a missed payment or addition to the household – such as a newborn baby – that it was unaware of when initial payments.
For the child tax credit, tax time is also when the IRS takes money from refunds to reconcile overpayments for households that got the advances but earned too much. money.
It is therefore particularly important for taxpayers to indicate precisely the amount they have already received.
Anyone requesting money owed from a stimulus check through the “recovery refund credit” has two ways to confirm the amount already received. The IRS has already sent “letter 6475” stating the amount. People with an online account with the IRS can access the number by looking under “tax records.” The IRS also sent a document (letter 6419) describing the amount already paid for the child tax credit. This paid amount can also be found in the online account, the IRS said.
5. Don’t forget the child care and dependent care credit
This credit should not be confused with the child tax credit. This is intended to help families offset their childcare costs while they go to work – and it has become much more generous this tax season.
The credit previously paid up to $1,050 for a single child or eligible dependent adult, and $2,100 for two or more people. After changes to the 2021 US bailout, this payment increased to $4,000 for a single child or adult dependent and up to $8,000 for two or more people.
Similarly, income eligibility and credit wind-downs eased significantly for just one year. For example, the full credit was previously capped for households earning less than $15,000 per year. This year, the phase outs start at the $125,000 point.
There are additional paperwork to claim this credit, but it can be worth it. The IRS will request Form 2441 and will want to know the caregiver’s information, such as name, social security number, or employer identification number.
6. Don’t forget the earned income tax credit
This tax credit for low- and middle-income working households also got a temporary surtax for 2021. Even before this year, observers worried that too many eligible taxpayers were being excluded.
The credit is a big boost for families with children to support, but the people who benefit the most from the temporary tax adjustment are taxpayers without children under their roof.
Before the U.S. bailout, eligible workers without children were set to receive a maximum of around $500. This year, that high may be triple the size at $1,502. Workers without children can access the full amount as long as they earn up to $21,430 ($27,380 for married couples filing jointly).
The credit is richer and applies to a wider age range. It traditionally applied to taxpayers between the ages of 25 and 64. This year it generally starts to apply at 19 and has no upper age limit.
That’s a significant potential boon for about 2.8 million older workers, said Elaine Ryan, vice president of benefits access at the AARP Foundation. That is, as long as they are aware of the chance.
“In that case, there could be significant financial benefits to asking questions, applying, and seeing what you’re eligible for,” she said. Access to federal EITC money could also result in related payouts in states that offer their own version of the earned income tax credit. These state-level credits can average $600, Ryan noted.
It can be confusing to find free tax preparation, but Ryan noted that the AARP Foundation offers free assistance through the senior tax counseling programs it runs and its tax assistance program. .
7. Cryptocurrency and Taxes
The IRS wants to make sure that anyone who owns cryptocurrency is fully honest about their taxable earnings.
This is why there is a “yes” or “no” question at the top of the 1040 asking “At any time in 2021, have you received, sold, traded, or otherwise transferred a financial interest in any virtual currency?
Some of the scenarios for saying “yes” include receiving virtual currency like bitcoin or ethereum as payment for goods or services, as a gift, or for sale. Switching from one cryptocurrency to another also counts as a “yes”, according to the IRS. On the other hand, if taxpayers have crypto but just keep it in their wallet, that may be a no.
These are tax considerations that more people need to understand as cryptocurrency grows in popularity. An estimated 19% of owned US adults owned some type of cryptocurrency as of mid-March, according to a Morning Consult poll.