During the 2021 tax season, the IRS held more than 29 million tax returns for several reasons. Most of the reasons had to do with the pandemic and dealing with stimulus pay, but another reason was people filing returns with missing information.
As the month of April draws nearer, it’s essential you take time to prepare accordingly and your tax returns filed in a timely manner. Many people overlook the fact that if you are going to receive a refund on your tax return, you can receive it faster by getting your returns filed as soon as possible.
In this guide, you will find important information on how to prepare for the 2022 tax season!
When Is Tax Season? When Does Tax Season End?
On January 24, 2022, the Internal Revenue Service announced that they are now accepting 2021 tax returns. One thing to keep in mind as you begin preparing your tax information and filing your return is that the IRS is still facing several challenges. Therefore, it may take longer for you to receive your return compared to past years.
If you’ve received stimulus checks or child tax credit money, you need to be on the lookout for IRS documentation being sent to you in the mail. These forms will need to be on hand as you complete your taxes for the 2022 season. The deadline for most people and businesses to have their 2021 tax returns filed is by April 18, 2022. For C Corporations, the deadline is March 15, 2022.
We urge you to check the deadlines in your area because if you live in places such as Maine or Massachusetts, the deadline to file your taxes is pushed back to April 19, 2022. With that being said, there are some things you can do to prepare for the season and file your taxes without missing a beat.
Keep an Eye on the Mailbox
The first step in preparing for the tax season is to watch for important tax documents. Without these documents filing your tax return is impossible.
You’ll need documents such as:
- W-2s (Used by employers to report wages paid to employees and the taxes withheld from them)
- 1099-INTs (Reports most payments of interest income)
- 1099-NECs (Reports non-employee compensation)
Each of these documents holds various information about your finances for the year that needs to be included in your tax filing to accurately determine whether you owe the government money or if you’re eligible for a return. Each business or bank will send out its documents at different times; therefore, you need to keep an eye on your mailbox.
It’s also important to keep an eye on your email and other platforms your company may use to send important documents. Businesses are looking for ways to reduce their carbon footprint and implement more sustainable measures in their routine procedures. Part of doing this means not sending documents like w-2s in the mail; instead, they’re opting to send it through secure employee portals or secure email. If this sounds like your employer, you might have access to your w-2 sooner than you thought. You will also want to speak with your employer about how they plan to send out this information and where it can be found. This gives you time to obtain the credentials needed to log into the portal and access your tax documentation.
If you’re married and filing a joint return, you will also need to be on the lookout for your partner’s tax documents. Even if you collect some documents that you think won’t matter in terms of your return, you’ll want to remain on the safe side and keep the document until you know you don’t need it.
There is nothing worse than needing something only to realize you’ve thrown it away by accident.
Have a Designated Folder for This Year’s Tax Return Documents
Being unorganized and not having the proper documents for this year’s tax return are some of the biggest problems that many people run into when it’s time to do their taxes. While some documents format the previous year you might need, it’s best to keep them separate until you must pull them. Create a folder for the 2022 tax season and keep all the documents you need in it.
We recommend you start this folder in advance, but it’s never too late to pull out your pen and label a folder as you begin to receive the different forms of tax documents in the mail. For example, if you invest in stocks, the platforms you use will send you information about your portfolio throughout the year.
Keep these documents in your folder because you’ll have to report your stock earnings during the tax season and pay taxes on them. If you’ve hired a professional to file your taxes for you, it’s best to have a physical holder to present them with. It makes it easier for them to thumb through each document while pulling the information they need from each one.
However, if you plan to file your taxes at home, you might find it easier to keep a digital file with all your information stored in it. This is beneficial because when it’s time to fill in specific information, you can copy and paste it from the electronic file right into your tax return instead of having to type it.
Child Tax Credit
Parents and guardians received a monthly check for their dependents from July-December of 2021. But you might have been worried if one of your payments didn’t come in the mail or you had a child during the year that would qualify you for more money.
When you file your taxes during the 2022 season, you’ll receive the rest of the child tax credit. The eligible children or dependents in the home are:
- Step or half-siblings
- Children that are adopted
- Foster children
The IRS will send you documentation about how much you received in your child tax credit payments and detail the remaining balance you’re due.
Lifetime Learning Credit
Are you currently paying the bill for higher education courses? If you’re paying out of pocket to obtain a master’s degree or higher, this would be the case.
The pursuit of education doesn’t come without a price, but you can receive some of the funds back when you file your return. While it sounds great to get your money back, you need to understand the LLC isn’t refundable. This means you’re not going to get the money you paid for your courses back in the form of a higher refund. You can only use your LLC return to lower the amount of money you owe the government in taxes.
Recovery Rebate Credit
2020 was when the first two stimulus checks were rolled out and mailed to people. Although many received their payments without incident, there were a significant number of people whose checks were delayed or the amount they received was lower than they’d assumed it would be.
There is a catch here to be aware of if you’re missing money from the first two stimulus checks sent out: they can only be claimed as a part of your 2020 tax return. Any missed stimulus payments after your 2020 return was filed will need to be claimed on your 2021 tax return.
Child & Dependent Care Credit
If you have little ones running around, you’re going to be glad to hear that you will receive some money back for them on your 2021 tax return. This is because your child(ren) depend on you to take care of them and provide them the necessities they need, such as food, water, and clothing. There is a maximum amount you can receive when claiming children on your tax return, but any little bit helps, especially if you’ve had to pay for things like daycare throughout the year.
Throughout your career, you’ve set aside funds from your check and had them allocated to your retirement fund. You or your employer must be making contributions to your retirement fund to possibly qualify to claim the saver’s credit on your taxes.
There are two factors that would disqualify you from claiming this credit, with the first being if you’re currently a full-time student. The second is if someone else, such as a parent or grandparent, can claim you as a dependent on their tax return. The credit you’ll receive if you qualify differs based on your AGI.
Residential Energy Credit
At this moment, there are around 175 million smart homes worldwide. If you’ve not considered converting your home into a smart home, you might want to think about it because you can claim some of the changes you make as deductions on your tax return.
There are some energy-efficient appliances you can claim, including:
- Energy-efficient doors and windows
- Smart thermostats
- Solar appliances
- Biomass stoves
- Electric cars
Ensure you check the fingerprint of these appliances, because you don’t want to miss out on claiming some of your new accessories, in addition to getting back a chunk of the money you spent!
Review Previous Year’s Tax Information
Each year that you file your taxes, you’re not starting from the ground up. You’ll need to have your previous filings nearby for you to pull information from if necessary.
One of the main reasons people review their previous tax returns is to ensure they’re not missing any information. Individuals who have investment accounts with capital losses for the year, may have had their losses limited on their 2020 returns to $3,000. The losses of more than $3,000 become available to be taken on their 2021 return.
You will also want to review is your withholdings from 2021. If you didn’t have enough money withheld throughout the year, it could mean you will end up having to pay a higher tax bill than expected. To prevent this from happening, your withholdings are something you should review each time you’re paid. By doing this, you can ensure you catch any issues in advance before it’s time to file your taxes. For freelancers, you’ll need to set aside money during the year to have funds to pay your taxes during the filing season.
Another thing not to forget is your charitable donations. Whenever you donate to a place such as the Goodwill, you’re asked if you’d like a receipt. Each time you’re asked, the answer should be yes if it’s from a qualifying charitable organization, because this can be used as evidence of a deduction you can claim on your taxes.
Preparing for Tax Season 2022
As you begin to prepare for tax season, make sure to keep these important details in mind. Whether it’s collecting all the documentation you need ahead of time or making sure to claim all deductions that you qualify for, taking these steps can make the tax return preparation process much smoother.
Do you need help filing your 2021 tax return? Let us help you file your 2021 return and ensure that every detail is accurate while also getting you every deduction you qualify for. We will optimize your tax return to where you receive the largest refund possible or by reducing the amount you owe as much as possible!
Do you owe back taxes to the IRS or State from previous years of unfiled tax returns? We can get you back on track by filing your missing returns and negotiating what you owe with the IRS and State! Solve your tax problems once and for all by contacting our team at Polston Tax today.
Call (844) 841-9857 to schedule your free consultation!