As year-end 2021 approaches, it’s a good time to start organizing for 2022 tax season. Steps you take now can save you headaches – and possibly avoid penalties — next spring. In addition to making sure you know the deadlines and have withheld enough tax, you’ll also need to take into account a few items specific to tax year 2021.
Here are some issues to consider:
- You may be eligible for a Recovery Rebate Credit. Economic impact payments, otherwise known as stimulus checks, are not taxable income but instead an advance on a tax credit. The American Rescue Plan Act signed by President Biden in March provided eligible Americans a third stimulus payment. Most Americans have already received their funds, but the IRS is still sending plus-up payments to those who based on their 2020 tax return were eligible for more stimulus. If you were eligible but don’t receive your plus-up funds before the end of the year, you may be able to take a Recovery Rebate Credit on your 2021 return. Look for IRS Letter 6475 in early 2022. It will detail third stimulus and plus-up payments sent to you.
- Reconcile advanced child tax credit payments. As part of the American Rescue Plan Act, eligible families received up to $300 per month in advance child tax credit payments this year. The payments, which began in July, represent half of the available 2021 child tax credit. If you are one of these families, you’ll need to reconcile the amount already received with your total eligible child tax credit to calculate how much more you can claim on your 2021 Form 1040. Be on the lookout in January for IRS Letter 6419, which will detail advanced child tax credit payments.
- Make sure you have withheld enough tax. To avoid underpayment penalties, you need to pay withholding and estimated taxes equal to the smaller of 90% of your current-year tax balance or 100% of the tax shown on your prior-year return. U.S. tax law requires you to pay taxes as you earn income. If you should have been withholding more tax, there’s still time to adjust your withholding for a catchup in the last paychecks of 2021. Or you can make an estimated tax payment by January 18, 2022. You can use the IRS’s Tax Withholding Estimator to determine whether you have withheld enough tax.
- Gather and organize tax records. The end of the year is a great time to start organizing your tax records. Start looking for receipts for any charitable contributions made in 2021. Taxpayers who take the standard deduction are eligible through a CARES Act extension for a limited 2021 deduction of $300 for individuals and $600 for married-filing-jointly for cash gifts made to qualifying charities. Start organizing other tax records as well, such as backup and documents related to home-office deductions, virtual currency transactions or investments, gig work and unemployment payments, or any other 2021 income or deductions you plan for your 2021 return. Then in early 2022, be on the lookout for your Form 1099s, W2s, and other required forms.
- Make note of deadlines. Tax Day 2022, the day payments are due for tax year 2021, is April 18. If you aren’t ready to file your return, you still need to pay your taxes on time in order to avoid late-payment penalties. You can extend filing your return until October 17, 2022. Extensions are automatic as long as you file Form 4868 by April 18.
Have Questions? Call the Experienced Tax Attorneys at Wiggam Law
While Wiggam Law does not prepare tax returns, we can help with other tax-related issues. If you find someone fraudulently used your Social Security number to obtain a stimulus payment or after calculating your taxes you find you cannot pay your tax debt and need to negotiate a payment plan, the experienced attorneys at Wiggam Law can evaluate your situation and recommend a course of action. Contact metro Atlanta’s top tax attorneys by clicking here or give us a call at (404) 233-9800.