5 Things You Should Do This Tax Season
Ready or not, the tax season has started. It officially kicked off on January 24th , as first day individual federal tax returns could be filed. Even though the IRS is still dealing with a huge backlog of 2020 returns (about 6 million at the end of 2021), it is game-on for 2021. With the staffing shortages the IRS is experiencing, the situation is unlikely to be any better this year and may indeed be worse.
If you expect to receive a refund and want to increase your chances of receiving it reasonably quickly, here are five things you should do:
1. Get organized - gather all the tax records you receive in one place.
- Income sources: W-2's, 1099's.
- Deductions and credits: dividends, interest, capital gains, retirement account contributions and distributions, social security benefits, business expenses, charitable contributions, etc.
- Note that recipients of child tax credits and stimulus checks will receive forms from the IRS (Letters 1649 for child tax credits and 6475 for stimulus checks).
2. Decide who will prepare your tax returns
- Will you do it yourself or hire a professional?
- If you do it yourself, what software will you use?
- If you hire a professional, do you prefer a large tax service or a local CPA or enrolled agent?
3. File early - the sooner the better, but not until you are certain you have received all the final tax documents for your income sources, bank accounts and investment accounts--you don't want the headache of having to file an amended return.
4. File electronically (with direct deposit instructions) - this is a must if you want to expedite processing.
5. File accurately - check your return carefully, even if the return is prepared by a professional--mistakes can delay refunds by many months.
If you are an employee, you may have already received your W-2. If not, you should receive it soon. Employers are required to distribute or mail W-2's to employees by Jan. 31st. For 2021, freelancers and contract workers will receive form 1099-NEC to report their compensation. The Jan. 31st due date applies to these sources too. If you have multiple compensation sources, make sure you receive a W-2 and/or 1099 from each one. Note that it is unlikely you will receive a statement from an income source from which you received less than $600 compensation in 2021.
Once your tax return is prepared, look it over before submitting it. For example:
- Make sure your name and your social security number are correct.
- Check your W-2 and 1099 statements against your last paystub or compensation statement you received.
- Confirm the amounts of your deductions and credits.
- Verify that the amounts of your tax withholding and/or estimated payments are correct.
Lastly, the IRS is very concerned about fraud and identity theft. In 2020, 5.2 million returns were suspected of fraud. When they suspect fraud, the IRS mails a letter to the taxpayer and halt the return until they receive a response. Make sure they have your correct and complete address, so you receive the letter. If you receive one, be sure to respond promptly.