Getting Ready for 2021 Tax Time
by Tanya Silves, CPA
The calendar flips over to a new year and it quickly becomes time to think about your taxes. An important first step to getting ready for tax time is to gather all your relevant tax records. Having records organized makes preparing a tax return easier and more efficient. It may also help discover potentially overlooked deductions or credits. Here are some of the key things you’ll need to get ready to ensure the preparation of your tax return is smooth and quick:
Gather Relevant Documentation
Most income is taxable, so you should gather income documents such as Forms W-2 from employers, Forms 1099 from banks and other payers, and records of virtual currencies or other income. This also includes unemployment income, refund interest and income from the gig economy.
A New 1099 Form in Town
Keep in mind that the IRS introduced a new 1099 Form. Beginning in 2020, you may have received Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if you performed certain services for and received payments from a business.
2020 Economic Impact Payments
You may also need Notice 1444, Economic Impact Payment, which shows how much of a stimulus payment you received in 2020. This amount is needed to calculate any Recovery Rebate Credit you may be eligible for when you file your tax return this Spring (2021).
Changes in Personal Information
You should notify the IRS of any address changes and notify the Social Security Administration of a legal name change to avoid delays in tax return processing.
Renew Expiring ITINs
If you have an Individual Tax Identification Number (ITIN), you should ensure it hasn’t expired before filing a tax return in 2021. For example, ITINs not used on a federal tax return at least once in the last three years expired on Dec. 31, 2020. If your ITIN has expired, the IRS recommends you submit Form W-7, Application for IRS Individual Taxpayer Identification Number, now to renew an ITIN. If you neglect to renew your ITIN before filing a tax return this year, you could face a delayed refund and may be ineligible for certain tax credits.
Get Ready for Your Refund
Different factors can affect your refund. Be careful not to count on getting a refund by a certain date. The IRS issues most refunds in less than 21 days. However, it’s possible your tax return may require additional review and take longer. And, if you claim the Earned Income Tax Credit or Additional Child Tax Credit, by law, the IRS cannot issue your refund before mid-February.
Combining direct deposit with electronic filing is the fastest way for you to get your refund. With direct deposit, a refund goes directly into your bank account. There’s no reason to worry about a lost, stolen or undeliverable refund check.
The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns by the July 15, 2020 deadline, and received refunds. Most interest payments were received separately from tax refunds.
By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return. In January 2021, the IRS sent a Form 1099-INT to anyone who receives interest totaling at least $10.
The COVID-19-related July 15 due date was considered a disaster-related postponement of the filing deadline. Where a disaster related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, if an individual filed a 2019 federal income tax return by the postponed deadline.
In addition to these tips, the IRS offers several ways for you to stay updated on important tax information that may help you get ready to file. Visit irs.gov for more information.
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Tanya Silves, CPA
Partner, Tax Director
Tanya Silves is a Partner and the firm’s Tax Director, with a deep expertise in tax planning and preparation for individuals and businesses.