This tax season is presenting some new complications. How to ensure your filing and refund go smoothly.
Carmen Reinicke
Provided by CNBC
This tax season is presenting some new complications. How to ensure your filing and refund go smoothly
Phone call volumes to the IRS are at record levels, the agency has a backlog of millions of claims from previous years and some pandemic-era changes still apply to 2021 tax returns.
"I am deeply concerned about the upcoming filing season," said Erin M. Collins, the National Taxpayer Advocate, in a recent report to Congress.
Here's what you need to know to ensure you're able to file your return accurately and get any refund you're owed quickly.
File as soon as you can
Experts generally recommend that people file their tax returns as soon as they've gathered all the relevant paperwork to fill out the form.
Filing as soon as possible is the fastest way to get your refund. The IRS says refunds should be sent in 21 days for people who file electronically and select to get any money owed to them directly deposited into a bank account.
"You're going to expedite the processing time [and] expedite any refunds requested," said Lisa Borrelli, a CPA and wealth planner at WSFS Wealth in Philadelphia.
It can also help combat fraud by ensuring no one else can submit an incorrect return in your name.
"We have seen a lot of fraud already at the very early onset of this tax season," said Paul Miller, a CPA and owner of Miller & Company, a New York-based accounting firm.
Filing well before the April deadline also gives you time to prepare if you owe the IRS.
"If you have a balance due, you know what you're dealing with and you have a couple of weeks to plan for it," said Misty Erickson, a tax-content specialist and project coordinator for the National Association of Tax Professionals.
Make sure you have the correct paperwork
Of course, you shouldn't file until you have all the paperwork you need to accurately fill out your tax return. That includes any W-2s, 1099s and letters from the IRS about stimulus checks or child tax credit payments you might have received during the year.
What people most often miss is 1099s for income, such as money from a side hustle or investment. If you traded stocks or cryptocurrency assets last year — or claim a dependent that trades — you need to correctly report that income.
If you're not sure what you need to report, there are a few things you can do. Checking your tax return from last year can be a good place to start, but be aware that there have been some changes due to pandemic relief that might mean you need more or different forms to file this year.
It also helps to work with a professional who will do their best to ask the right questions and ensure you have all the paperwork you need. In addition, many tax software platforms include questions to determine what you need to file.
If you're still not sure you have everything you need to submit your tax return, you can pull your IRS transcript, Miller said. This shows what information the IRS has for you; matching that information with what you file can help eliminate errors that could delay a refund.
Learn what's different this year
There also are some key differences in filing this year for certain groups of people, such as young adults and families with children eligible for new credits.
Parents with eligible children who received advanced child tax credits in monthly payments last year need to reconcile how much they got to ensure they enter the correct remaining amount of the benefit in their tax return. To help this process, the IRS sent letters in January detailing what families were sent; this information can also be found online.
Those who want to claim the expanded child and dependent care tax credit could see up to $8,000 back for one child or $16,000 back for two or more, up from the previous maximum of $3,000 for one child and $6,000 for two or more.
For this benefit, parents should make sure that they have saved receipts for what they spent on child care last year, said Miller.
"You should try to really tighten up your documentation," he said.
Some young adults without children are also newly able to claim an enhanced earned income tax credit, which could result in an extra $820 on average to their refund.
Of course not all changes are a benefit to taxpayers. In 2020, single filers who had unemployment income didn't have to pay taxes on the first $10,200 of that income. This no longer applies to 2021, meaning any unemployment income received during the year will be taxed.
File online
The IRS is struggling to process paper returns and has said that filing online is the fastest and easiest way to submit your information and get a refund in a timely manner.
In addition, experts recommend filing online because it makes tracking your return and refund much easier than the old-fashioned way. You not only get a quicker confirmation that the IRS has received your information, but you can follow its progress on online portals.
"Electronically, there is a much more immediate response," said Erickson.
Get help if you need it
This is yet another tax season where professional help may be a good investment, especially if it ensures that you'll file accurately and claim all benefits you're eligible for.
"Yes, there are costs associated" with working with a professional, Erickson said. "But then it's setting you up for future success."
In addition, you can work with a professional in a few ways — either they can compile and file returns for you, or you can work with them as a consultant who checks over your work, said Borrelli.
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