The IRS says taxpayers should be prepared for delays and service issues when a messy tax-filing season opens Jan. 24.
The IRS has announced that this year’s tax filing season will start on Jan. 24, and due to Covid, budget cuts and understaffing, the agency expects it will have big challenges issuing refunds and providing other taxpayer services.
So be prepared for a messy tax season. Here’s how you can navigate the obstacles and avoid the common mistakes that result in further delays and even penalties.
Contribute to Your Retirement Accounts
First, if you haven’t already funded your retirement account for 2021, you have until the tax return filing due date — Monday, April 18 0– to do so. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal.
Organize Your Records for Tax Time
Good organization may not cut your taxes, but there are other rewards and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.
How to Get Started
Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.
Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look important.
Collect receipts and information that you have piled up during the year.
Find the Right Tax Forms
You won’t find all of them at the post office and library. Instead, you can go right to the source online.
View and download a large catalog of forms and publications at the Internal Revenue Service website or have them sent to you by mail.
The IRS also will direct you to sites where you can pick up state forms and publications.
Itemize Your Deductions
It’s generally easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area.
Itemizing is worth it when your qualified expenses add up to more than the 2021 standard deduction of $12,550 for most singles and $25,100 for most married couples filing jointly.
Many deductions are well known, such as those for mortgage interest and charitable donations.
You can also deduct the portion of medical expenses that exceed 7.5% of your adjusted gross income for 2021.
Home Office Tax Deduction
The eligibility rules for claiming a home office deduction have been loosened to allow more self-employed filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. You must use the space exclusively for business.
File and Pay on Time
If you can’t finish your return on time, make sure you file Form 4868 by April 18, 2022. Form 4868 gives you an extension of the filing deadline until Oct. 17, 2022. On the form, you need to make a reasonable estimate of your tax liability for 2021 and pay any balance due with your request.
If you file and pay late, the IRS can hit you with a late-filing penalty of 4.5% per month of the tax owed and a late-payment penalty of 0.5% a month of the tax due.
The maximum late filing penalty is 22.5% and the late-payment penalty tops out at 25%.
By filing Form 4868, you stop the clock running on the costly late-filing penalty.
File Electronically
Electronic filing works best if you expect a tax refund. Because the IRS processes electronic returns faster than paper ones, you can expect to get your refund three to six weeks earlier. If you have your refund deposited directly into your bank account or IRA, the waiting time is even less. This will definitely be the case given the expected delays this season.
Get Free Help
The IRS.gov website has information, news, tools, tips and forms. Read the latest on how to file your tax return, pay taxes, track your refund and get everything you need to know about credits and deductions.
