February 1 brings us the shortest month of the year, the Lunar New Year of the Tiger, and the perfect time to take care of some tax tasks.
Since we only have 28 days, let's get right to three tax matters you should take care of this month.
1. Tame your filing tiger: While you might think you're ready to pounce on your 2021 tax return, harness some of your inner tiger's stealth and make sure you've got all you need to do the job correctly. If you file before you get all the proper tax reporting documents — like the most common ones listed in my earlier tax statements post — missing or incorrect info could lead to Internal Revenue Service processing delays.
Typically, most year-end forms start arriving by mail or were available online last month. But the deadline to issue them is Jan. 31, so they should be in hand (or on computer) soon. Once you get all the docs you need to file, review them carefully. If any of the information is wrong or missing, you need to contact the payer as soon as possible to get a corrected form.
There are two new IRS statements you could need to file this year. Letter 6419 tells recipients of advance Child Tax Credit payments last year how much the IRS sent, and the number of qualifying children the agency used to calculate the payments, which were sent in monthly installments last July through December.
For many, those payments came to half the full credit amounts of $1,800 or $1,500 per child, depending on your kiddos' ages. You need the letter info to claim the other half of the credit on your return.
The there's Letter 6475, which has details on the third Economic Impact Payment (EIP) issued last year to help offset financial losses due to COVID-19. Most folks, says the IRS, got the maximum $1,400. That means they won't include any information about it when they file.
However, people who didn't qualify for a third payment or didn't receive the full amount may be eligible for the Recovery Rebate Credit. In these cases, they'll need the total amount of their third EIP to file for the correct remaining credit amount.
2. Don't overlook filing: Most of us who made money last year have to file a 2021 tax return. But in some cases, the IRS doesn't demand it. If you're one of those who doesn't normally have to mess with a Form 1040 (and more!), those of fighting our annual forms envy you.
However, you might want to reconsider. You might be missing out on some tax cash available via a variety of tax credits. The most common, and potentially lucrative, tax credits that you might be losing out on include:
- The Recovery Rebate Credit — As mentioned earlier, this credit will get you any remaining COVID economic impact payment you're eligible to claim. Although the EIPs were for 2021, the amounts were based on prior year filings. If your family or financial status changed in 2021, for example, your family grew, you could get additional EIP money by filing for the Recovery Rebate Credit.
- The remaining Child Tax Credit — This, too, was discussed earlier. You need to file to get the rest of the Child Tax Credit that wasn't delivered last year. And as noted in the previous paragraph, you if you added another qualifying child to your family last year, you need to claim credit for that youngster now on a 2021 return.
- The Earned Income Tax Credit (EITC) — This tax credit for lower- and moderate-income taxpayers is one of the most overlooked tax breaks. That's too bad, as it can provided a nice chunk of cash at tax time. And missing out on it this filing season is especially too bad, since it's been enhanced for the 2021 tax year, nearly tripling the benefit for filers without children.
The beauty of these tax breaks is that they are, as noted, tax credits, meaning they will offset any tax you owe. And for 2021 tax purposes, the Child Tax Credit joins the Recovery Rebate Credit and EITC as being refundable, meaning it there's any credit left over after eliminating your tax bill, you get it as a refund.
Since you don't have to file, you shouldn't owe. That means you're looking at a refund from any or all of these refundable tax credits.
Again, the only way to take advantage of these refundable tax credits is to file a return, even if you don't legally have to do so.
Plus, as the IRS-distributed economic impact payments in 2020 and 2021 show, it's not necessarily a bad idea for the tax man to have your most recent information. When Congress tells the IRS to send out future payments, and we all know this will happen again, you'll be in the system, on the distribution list and not having to play catch up for those funds.
3. Decide how you'll file: OK, you must file a return or are going to so you can claim credits. Now you need to decide just how you're going to do it.
Electronic filing is the go-to method, either by taxpayers who take the do-it-yourself route with tax preparation software or who turn their taxes over to tax pros who prepare and e-file for them.
Lunar New Year lore says those born in a tiger year are like their eponymous Chinese zodiac animal. They are ambitious, daring, courageous, and self-confident, which sounds like they're likely to want to file their taxes on their own.
That could be a good move, as long as your tax situation is simple. Rather than buy the software, check out ways you can get it for a reduced or no cost. Some financial institutions offer their customers discounts on popular software programs.
There's also Free File. Eight companies are offering their tax software this filing season to taxpayers whose adjusted gross income is $73,000 or less. If you made more, the IRS' Free File Forms option is available.
Lower income and elderly taxpayers also might be able to get more personal help, again for free, from IRS-sanctioned Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) locations nationwide.
In this case, utilize your inner striped feline cunning, regardless of your zodiac sign, and track down an appropriate tax pro ASAP. With the tax filing problems of the last couple of tax seasons, most tax pros' calendars are filling up fast if they haven't already.
More February tax moves: Since it's a short month, that's enough to start get it started. But if you want more tax tips, check out the ol' blog's right column.
In addition to the monthly tax tips listed in the top right spot, scroll down a bit and you'll see additional tax-wise ways to fill the next 28 days. They're listed under the February Tax Moves heading, just beneath the countdown clock that's keeping track of how many days until 2022's Tax Day on April 18.