The 2021 tax filing season is finally underway. The Internal Revenue Service started processing returns on Friday, Feb. 12.
A lot of the 1040 forms actually had been submitted electronically weeks earlier, and were just waiting for Uncle Sam to accept them. This is not unusual. Millions of taxpayers file as early as possible, with good reason, every year.
But there's something to said for those of us who wait.
Here are x reasons why you might slow your roll when it comes to filing your 2020 tax return.
1. To get a bigger COVID-19 economic impact payment (EIP).
Wait, aren't folks supposed to file early to claim the full coronavirus payments they didn't get in the first two rounds, known as EIP1 and EIP2? Yes, but Congress is expected to approve the Biden Administration's requested third payment (EIP3) sometime in March; the goal is by March 14, the day that the federal $300 per week unemployment add-on expires.
As with the earlier payments, the amount you receive will be determined by your income. The IRS again will determine and distribute the EIPs. And, again, to make the EIP3 calculations, it will use the latest income information it has on file for taxpayers.
While lots of folks saw their income drop in 2020 due to COVID-19 complications, some actually earned more than they did in 2019. If you're one of those who made more money in 2020, you might want to wait to file your current return so that the IRS will determine your third EIP using 2019's lower earnings. That should get you a larger check. Then when you do file your 2020 return, you can claim the missing EIP1 and EIP2 amounts you're due.
Of course, every person's situation is different. If you desperately need any tax refund you're due, plus the earlier EIP money, then file soon. But if you can wait and doing so will get you a larger EIP3 amount, then put your filing on hold for a while.
2. To get more money based on your children.
In addition to a third EIP, the COVID-19 relief package currently being debated also includes a larger Child Tax Credit. Currently, it's a $2,000 maximum per qualifying child. President Joe Biden's American Rescue Plan would bump the credit to $3,600 payout, with the amount reduced for higher income earners. It starts phasing down for single taxpayers making between $75,000 and $100,00 of adjusted gross income (AGI); between $112,500 and $150,000 for head of household filers; and $150,000 and $200,000 for jointly filing married couples.
Like the basic EIPs, this tax credit would be distributed in advance by the IRS based on the tax data the agency has on file. So if your 2019 AGI will get you a bigger advance Child Tax Credit than your 2020 earnings, then you might want to wait to file your current return. Of course, if you have children, you probably need any amount of money you can get as quickly as possible, like yesterday!
3. To make sure you have all your tax statements.
If the only data you need to file is from your job's Form W-2, then you probably can (and should) file as soon as you can. But a lot of folks get a lot more tax statements than just a W-2. These documents not only have data necessary to properly fill out a tax return, but they also are copied to the IRS.
You should have these documents by now. They were supposed to be delivered by Feb. 1 since the usual Jan. 31 due date was on Sunday. If, however, your employer waited until he last minute to send out the forms and did so by mail, you still could be waiting, especially given the U.S. Postal Service's current problems.
If the tax documents don't show up soon, either in your curbside snail mail box or email, then contact the companies and ask for the earnings statements to be reissued.
Filing patience also is advised if you get any of the tax documents that aren't on the Jan. 31 (Feb. 1 this year) delivery schedule. In fact, these usually aren't issued until well into the filing season or even beyond.
This is the case with K-1 forms issued for partnerships, LLCs and S corporations, which don't have to be sent until March 15. If you need a K-1 to file, there's no way to do so until you get it.
Filing without the correct information means delayed processing, slowed refunds, an amended return filing and dealing with the IRS much more than you ever wanted.
4. To make sure you have all other tax information.
Formal tax statements you need to file your taxes are issued in many cases, but not all. For example, you got the new 1099-NEC forms for contract work you did as full-time freelancer or for the gig work that helped you through COVID-19 when your main job cut your hours or closed. These forms were sent to you because you earned $600 or more.
But some of your other earnings were less than the statement triggering threshold. Since all readers of the ol' blog are honest taxpayers, I know they'll report the $599 their neighbors paid them for taking those great photos of their child's first birthday party.
To file your accurate earnings amounts, you'll need to check all your financial records, such as bank accounts or online payment apps.
Also make double check that you have all the details on potential tax breaks, such as medical expenses if you're still itemizing and claiming these costs. Or the expenses you paid for the care of your young children so you could work. You need these amounts — as well as the caregiver's tax identification number — to claim the child and dependent care credit.
Again, if you find such income or expenses after you file, well, you know the amended return drill.
5. To sort through your personal tax complexities.
If you're one of the taxpayers who gets lots of tax statements, that's an indication your return is more complex. And the more complicated your taxes are, the greater the chances that you'll screw them up if you're in a hurry to file.
If you have more involved taxes — multiple jobs, such as a night shift or shorter side gigs to supplement your main work's wages, or your own business or investments or a big, messy family — you'll probably need time to sort through all the related tax implications. In these cases, it's a good idea to start your return early, but then take your time contemplating your tax and filing choices and carefully reviewing the return before sending it to the IRS.
There's another complexity factor that’s beyond your control: the tax laws. That's definitely a consideration this COVID-complicated filing season.
Did you get unemployment? Remember that this is taxable income. Make sure you got a 1099-G with the amounts and that the information is correct. Some folks have found benefits amounts that don't jibe with what they got. In some cases, they could be victims of unemployment identity fraud.
Plus, what with historic unemployment last year due to COVID-19, there's a proposal being floated on Capitol Hill to exempt at least some of these jobless benefits (right now the number is $10,200) from federal taxation. If that happens, waiting means lower tax due when you do file.
Did you get a Paycheck Protection Program (PPP) loan? While the second COVID-19 relief bill in late December 2020 cleared up the confusion about business deductions, the issue still is causing problems for filers in some states.
And speaking of states, did you work from home as part of your employer's pandemic precautions? Is your home in a different state or tax jurisdiction than your company? Those location differences could cause you to owe taxes to more than one state or local tax collector.
These complexities likely will require some time for you to work through so that you can filed an accurate federal and state tax return.
6. To allow you to find a tax professional.
Complex tax considerations also could mean you need to hire a tax professional. That's a good idea, and not one to be taken lightly or done quickly.
You'll need to spend time to determine the type of tax pro that best fits your needs. Then you must thoroughly check out potential tax preparer candidates. That takes time to do correctly, but in the long run, it's well worth it.
7. To ensure you understand your return.
I know, most of us just want the filing over with ASAP. I get it.
The hubby and I have been married for a long time, during which I've always done our taxes. And every year when I tell him what I've done as far as our 1040, he wants to brush it off with a "I trust you." I'm glad he does, but I still insist he at least fake listening to my explanations.
It's important that he know what's on the return because when all of us taxpayers sign our 1040s, either with a real John Hancock or an electronic signature, we all are attesting to the return's accuracy.
That's true even if you paid a tax preparer to do the job. The ultimate legal responsibility is yours. And if like the hubby and I you file a joint return, the responsibility is on both of you, even when one spouse did the actual filling out of the forms.
So if you have questions about why a deduction was or wasn't claimed or how come your tax bill was bigger this year than last, ask. Ask your tax software's help option if that's how you're doing your taxes. Ask your tax-preparing spouse. Ask the tax professional you hired. And ask and ask and ask until it's totally clear.
8. To get your return right the first time.
All the previous seven filing procrastination situations discussed earlier in this post ultimately lead to one conclusion. Once is enough when it comes to doing your taxes.
But if you're too eager to file your return, you might have to do it again because in your rush you didn't include necessary information or made a mistake.
A mistake on a return, such as overlooking some income or a deduction, means you'll need to correct it by filing previously mentioned and usually dreaded amended return (Form 1040X) as soon as you discover it.
Things can get even stickier when it's the IRS that finds your filing faux pas. And you can bet the tax agency will, eventually. In fact, if you make a 1040 mistake, you want the IRS to find it quickly. The longer the tax error sits there, the more tax penalties and interest on what you owe adds up.
However, if you can just let your original return sit there a bit before you file it, you'll give yourself time to take another look. Such review can be valuable.
I've been a professional writer my whole adult (and a bit before) life. Much of that time, I've been writing about taxes. Over the years, I've discovered that writing and filing taxes have something in common. Often, as soon as you're done, you see something you want to change.
It's not too difficult to change an article or blog post. Just call your editor or open your blog publishing tool and make the revision. It's not nearly as easy to make changes with taxes.
So after you do your return, be it this first week of the 2021 filing season or closer to the April 15 due date, take a break. Step back and go on about the rest of your life for a while. Then come back to your return and look it over. Fresh eyes often make a mistake suddenly seem amazing obvious.
And since you took some time before submitting your 1040, you have time to correct it.
You also might find these items of interest:
- 7 reasons to file your tax return early
- Claiming your coronavirus Recovery Rebate Credit
- Free File users have 9 software companies to choose from this year
|Coronavirus Caveat & More Information
In 2021, we all still are dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.