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The IRS officially opens for business today, January 24th, to begin accepting individual income tax returns.
Expect Challenges & Delays
Because of COVID-19, the IRS is still experiences challenges and delays in some of their services, including some 6 million unprocessed individual returns. Yikes! In the case you're due a refund, you can expect a delay in the processing of that refund. Additionally, if your return requires additional handling by the IRS, such as a human review, this can also delay the processing of your return. One of the best defenses is to ensure you have complete and accurate information when filing your returns.
Get Organized!
Many of your tax documents will be sent to you either electronically or via mail by mid-January. Some documents, such as those related to investments may be coming later, usually in mid-February. If you have investments in private businesses, such as partnerships or S corporations, you may not receive all of your information until mid-March or later; check with the business to understand what you'll be receiving and by when.
Economic Impact Payment aka Stimulus payments
The IRS sent out a third wave of stimulus payments back in March 2021. The IRS sent out Notice 1444-C, Your 2021 Economic Impact Payment, to those that received the third payment. However, it's best to double check your IRS account as well as your bank account to confirm the amount that was paid to you, if any. If you didn't get the full amount of the third stimulus amount, you may be eligible to claim the 2021 recovery rebate credit when you file your 2021 tax returns. This will help reduce the amount you owe or increase your refund.
Advance Child Tax Credit
The IRS began automatically sending out payments to those that qualified for the Child Tax Credit. They also set up a site whereby taxpayers could opt out of the payment. This was handy if your income was reduced in 2020 and you expected to have higher income in 2021 that would make you ineligible for the credit.
There were, however, a few challenges. First, for a married couple, both spouses needed to opt out. In the case that only one person opted out but not the other, it's possible that the household still received some portion of the credit. Second, the deposit amounts may not have been consistent each month. In either case, the amount of the advance will need to be noted on your 2021 tax return.
Note that there are income limitation on who can claim the recovery rebate credit as well as the Child Tax Credit. Many families that typically may not qualify because of their income may be able to claim one or both of these credits in 2021 given the continued disruption brought on by Covid-19. Again, you can check your IRS account. Also, it's advisable to double check your bank account for any deposits made by the IRS.
Cryptocurrency transactions
The IRS continues to put cryptocurrency transactions on their radar again this year. If you sold crypto in 2021, the IRS wants to know about it. Many of the popular exchanges allow you to download your transactions for tax reporting (some are better than others). However, if you used multiple exchanges then you may consider using an app that can aggregate your transactions across multiple exchanges into one report. Many of these tax aggregator apps, like CoinTracker.io, also allow you to give access to your accountant to help with collaboration during tax time.
Create an IRS account
I mentioned this above but it's worth mentioning again: create an account with the IRS. Once completed, you're now able to see what the IRS has on file for you including payments made on your account, such as estimated tax payments, payments made to you, such as the stimulus or advanced child tax credit, copies of notices and letters, as well as transcripts of prior year tax returns.
Looking for tax help this year? Start here.
Disclaimer
Please see our Disclaimer. The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. Please consult with competent financial, tax, and/or legal before engaging in any transaction.