Here’s what you need to know before you file your 2021 tax return
With tax time around the corner and W-2s coming soon if they haven’t already, it’s important to know how to file properly and what to do to lower your taxes, save money and avoid penalties.
The deadline for filing 2021 tax returns is Monday, April 18 for most people. W-2s must be mailed no later than January 31.
Here are some handy tips from the Internal Revenue Service and others to help guide you and get you started this tax season.
Tax return step 1: Gather all year-end income documents
It’s important that people have all the necessary documents before they prepare their tax return, according to the Department of Internal Revenue. The IRS has released a list of forms taxpayers must have before they start filing their taxes.
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- Social security numbers of everyone listed on the tax return. Many taxpayers have these numbers memorized. However, it’s a good idea to have them on hand to check that the figures on the tax return are correct. An SSN with the wrong number or two reversed numbers will cause processing delays.
- Bank account and routing numbers. People will need it for direct deposit refunds. Direct deposits are the fastest way for taxpayers to get their money back and prevent a check from being lost, stolen, or returned to the IRS as undeliverable.
- Don’t have a bank account? Learn how to open an account at an FDIC-insured bank or through the National Credit Union locator. Veterans can access the Veterans Banking Program.
- W-2 forms from employer(s).
- 1099 forms from banks, issuing agencies, and other payers, including unemployment benefits, dividends, distributions from a pension, annuity, or retirement plan.
- Forms 1099-K, 1099-MISC, W-2 or other tax return for gig economy workers.
- Form 1099-INT for interest received.
- Other income documents and virtual currency transaction records.
- Form 1095-A, Health Insurance Market Statement. Taxpayers will need this form to reconcile prepayments or claim premium tax credits.
- Letter 6419, 2021 Total Advance Child Tax Payments, to reconcile tax credit advance payments.
- Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim stimulus rebate credit.
Detail tax deductions
Although it’s easier to take the standard deduction, the Turbo Tax website says you can save a lot of money if you itemize, especially if you’re self-employed, own a home, or live in a high-tax area. The breakdown is worth it when your qualifying expenses total more than the standard 2021 deduction of $12,550 for most singles and $25,000 for most married couples filing jointly.
“Many deductions are well known, such as those for mortgage interest and charitable donations,” the website says. “You can also deduct the portion of medical expenses that exceeds 7.5% of your adjusted gross income for 2021.”
File and pay on time
If you can’t complete your return on time, be sure to file Form 4868 by April 18, according to Turbo Tax. The form gives you an extension of the filing deadline until October 27. On the form, taxpayers should make a reasonable estimate of their tax liability for 2021 and when they will pay any existing balance owing with their application. The website said requesting a timely extension is especially important if you end up owing taxes to the IRS.
E-filing works best if you expect a tax refund, Turbo Tax said, because the IRS processes electronic returns faster than paper returns. You can expect to receive your refund three to six weeks earlier. If your refund is deposited directly into your bank or IRA account, the wait time is even shorter.
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