It’s that time of year again—time to get all of your W-2, 1099, income and investment statements and other paperwork and receipts together to make some headway on preparing and filing your 2021 tax returns.
Now, no one ever said that doing taxes was easy, but 2021 has a few wrinkles that may affect your tax-filing checklist. Here are seven actions you may want to think about taking as you get started.
1. Make sure you get the child tax credits you’re entitled to
If you received advanced child tax credit payments in 2021 you should receive IRS Letter 6419 sometime in February. This letter will summarize the total child tax credit payments you received last year. You’ll need to compare this amount to the total amount of the child tax credit you can claim on your 2021 tax return.
If you received less than the amount you were entitled to you can claim a credit for the difference on your tax return. If your family didn’t get monthly payments you can still request a lump-sum payment by claiming the child tax credit on your tax return.
2. Claim any missing stimulus payments
Sometime in February you should receive IRS Letter 6475, which will tell you how much you received in economic stimulus payments last year. This figure will include the amount you received for the third round of payments issued in 2021 as well as any additional “plus-up” payments you received for stimulus payments you should have received in 2020 but didn't.
If you didn’t receive the third economic impact (stimulus) payment in 2021 you were entitled to or didn’t get the full amount, you may be able to claim a Recovery Rebate Credit on your 2021 federal tax return to claim this missing amount.
3. Estimate possible taxes you may owe on unemployment compensation
If you or your spouse received federal or state unemployment benefits these payments are generally subject to federal and/or state income taxes (but not Social Security or Medicare taxes). If taxes were not automatically withheld from these payments you may end up owing taxes.
Your state should be sending you Form 1099-G, which summarizes the total benefits you received in 2021. If you established an online account through your state’s unemployment assistance office your 1099-G form may also be available online.
4. Take advantage of special charitable tax deductions
If you don’t itemize deductions but made cash donations to qualified charities in 2021 you may be able to deduct up to $300 (if you’re a single filer) or $600 if you’re married and file jointly. This is an extension of the special charitable tax provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act that went into effect in 2020.
5. Get your refund faster by filing early and electronically
Millions of Americans are still waiting to receive their 2020 federal tax refunds and the IRS is unlikely to fix this lag for many 2021 filers. If you believe you’re entitled to a refund this year, take the following steps to speed up the process:
- File your return electronically. Printed returns take longer for the IRS to process and validate.
- Use direct deposit to have your refund transferred electronically into your bank account, rather than wait months for a check. To set this up you’ll need to provide your account’s routing number and account number on your tax return.
- File as early as possible. Returns that are received well before the tax filing deadline will be closer to the front of the processing line.
6. Take an extra weekend to finish and file
Normally, April 15 is the deadline for the filing of tax returns. This year the deadline has been extended to Monday, April 18 because federal offices in Washington, D.C. will be closed on Friday, April 15 for Emancipation Day. All state returns are also due by April 18 except for Massachusetts and Maine, where the deadline will be Tuesday, April 19.
7. Set up an online tax account
If you owe federal taxes this year, or need to make estimated payments every quarter, consider using a variety electronic payment methods allowed by the IRS instead of mailing checks. You can also set up a permanent online account to view outstanding balances, create payment plans and access records from your most recent tax return.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer or professional tax advisor and a financial advisor.
This article was authored by Dan Flanagan and Jeffrey Briskin. Dan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or firstname.lastname@example.org. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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