Every new year starts off with–you guessed it!–a new tax season. While it’s definitely not most people’s favorite time of year, now is a good time to start getting organized and preparing your taxes.
Tax season has officially started, and while you may not have all of the various documents you need on hand, there are some steps you can take to get organized and prepare for filing.
Here are our top tips for getting started on your 2021 taxes.
Make sure you have an online account created on the IRS website. Your account can be helpful in staying organized and can show you the following:
- View the amounts of Economic Impact Payments you received.
- Get information on the Child Tax Credit payments.
- View your 2020 tax information.
Creating an account ahead of time will help you get the ball rolling.
Gather your Documents
You should have a pretty good idea of what documents you need in order to file. Look at previous years to determine what forms you should expect and what forms you may need to track down.
In general you need to report any income you make, whether it is from a regular hourly job, from interest earned, or from gig work. The forms required will vary, but some of these documents may include:
- W-2 forms from your employer.
- 1099-K and 1099-MISC forms from contract positions (if you work in a gig economy or in freelance).
- 1099 forms from your banks, unemployment, dividends, or distributions from pensions, annuities, and retirement plans.
- 1099-K forms from interest you have earned.
- Forms from virtual currency transactions.
- Letter 6419 2021 (Total Advance Child Tax Credit Payments)
- Letter 6475 (Economic Impact Payment)
- Form 1095-A (Health Insurance Marketplace Statement)
These forms will vary greatly from individual to individual depending on your work situation and what type of accounts you own. If you think you may need a document, it’s best to find it and have it on hand in case you need access to it.
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Set Up Your Direct Deposit
The fastest way to file and get your refund is to file electronically and get your refund through direct deposit. You can do this online through your IRS account. Setting up direct deposit will not only ensure that you receive your refund quickly, but it will reduce the chance of it getting lost in the mail.
Get a New ITIN, If Needed
If for one reason or another you do not have a social security number, you will need to make sure you have a valid ITIN (Individual Tax Identification Number). ITIN’s are used to identify and process taxes when a Social Security Number is not available.
If your ITIN was not included on a U.S. federal tax return at least once for the previous tax years 2018, 2019, and 2020, your ITIN expired on December 31, 2021. For more information check out the IRS ITIN resource page.
Check Your Witholdings
If you either owed money or received a large refund last year, consider adjusting your withholdings. A large refund means that you could have had extra money in your paycheck every month to help make ends meet. If you ended up owing money, an adjustment to your withholdings could help ensure that you do not have a lump sum that you end up owing.
The amount you withhold will ultimately affect your budget (and if you need some help with budgeting, be sure to check out our Guide to Budgeting).
Balancing your withholdings is always a good thing to do. If you need help deciding how much to withhold, use this online calculator to help.
Get Your Recovery Rebate Credit
If you were not eligible for the third Economic Impact Payment in 2021, or only received part of it, you may be eligible for a Recovery Rebate Credit. The IRS will send you Letter 6475 that will outline any EIP payments you received in 2021. Keep this form for when you file. Note that this only applies to the third Economic Impact Payment issued in 2021, not the first two payments from 2020.
Reconcile Child Tax Credit Payments
If you received advance child tax credit payments, you must reconcile them with the amount you are allowed to claim. If you received less than you are eligible for, you will be given credit for the difference. If you received more than you are eligible for, you may need to repay the excess. Your Letter 6419 will come from the IRS and tell you how much you received during 2021 (or you can check online). Keep this form for filing.
Know the Dates
The 2021 tax filing season has officially begun as of January 24, 2022.
Keep in mind that the tax filing deadline for 2021 taxes is April 18, 2022. This is also your deadline to file for an extension if needed. Filing as early as possible will help you get the first round of returns from the IRS, so if you know you have money coming your way that you could really use, file as soon as possible and file online.
The IRS has already announced that they face a significant backlog from the 2020 tax season. This backlog is for several reasons, including a budget that has been slashed by more than 20% in the past decade, leading to staffing shortages. Combined with a large amount of staff that were out of work part time for Covid, there were far fewer employees to deal with tax season.
To make a bad situation worse, the 2020 tax season was more complicated for many people due to EIP payments, tax credits, and unemployment claims. They had a record number of calls into the IRS helpline in 2021 from people trying to navigate an incredibly complicated tax season.
For all of these reasons, getting your 2021 tax return may take a bit longer than usual. The IRS is strongly encouraging taxpayers to file electronically to streamline the process. They still anticipate being able to process returns in a 21-day period.
And that’s everything you need to know to prepare for the 2021 tax season.
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