Congratulations you are coasting through the holiday season and the 2022 New Year is up ahead. But before you say goodbye to 2021 there is one item of business that needs be added to your Holiday “To Do” list, start planning for the 2021 tax season. The IRS tax filing deadline of April 15, 2022 is just four months away.
Let’s get organized
Having all the necessary tax documents gathered will not only make it easier to prepare a tax return but it will also prevent filing errors that lead to processing and tax refund delays. Important records for individual taxpayers include:
- Forms W-2 from employers
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, interest, distributions from a pension, annuity, or retirement plan.
- Form 1099-K, 1099-MISC, 1099-NEC or other income statement for workers in the gig economy
- Other income documents (such as brokerage statements) and records of virtual currency transactions
Other critical end of year documents
If you received an Advanced Child Tax Credit (ACTC) and/or Premium Tax Credit (PTC) or received an Economic Impact Payment (EIP) and want to determine their eligibility for a Recovery Rebate Credit (RRC), you should also keep the following documents on hand:
- Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments,
- Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit, and
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage.
The IRS will mail Letters 6419, 6475 and Form 1095-A to you, so you should be sure
to notify the IRS of any change of address. If you don’t receive, or can’t find their Letters 6419, 6475 or Form 1095-A, you can retrieve the information on these letters using your online account.
What Are the Benefits of an IRS Online Account?
- You can see the amount of your Economic Impact Payment (EIP) so that you can accurately claim a Recovery Rebate Credit (RRC),
- You can gain entry to the Child Tax Credit Update Portal to see the payment dates and amounts paid. You will use this information to reconcile your Advanced Child Tax Credit (ACTC) payments with the Child Tax Credit you can claim on your 2021 tax return.
Check Your Tax Withholding
If you owed taxes or received a large refund from the previous year, you may want to adjust your federal income tax withholding. If you owed taxes last year, you might want to consider having an additional amount withheld or making estimated tax payments to avoid an underpayment penalty. Other reasons that you might want to change your withholding—you got married or divorced, had a child, or took on a second job.
You can make withholding changes by completing Form W-4, Employee’s Withholding Certificate and giving a copy of the form to your employer.
You should also consider whether you need to make a 4th quarter estimated tax payment. If you
receive a substantial amount of non-wage income, such as interest, dividends, self-employment income,
pension or retirement plan income, taxable Social Security benefits or taxable alimony, you should make a quarterly estimated tax payment or increase your wage withholding to cover the taxes on this type of income.
The last quarterly estimated tax payment for 2021 is due on January 18, 2022. You can make an estimated payment through your online account or through IRS.gov/payments.
Year-end Maneuvers
- Clean out your closet and give away items to your favorite charity
- If you can’t itemize, instead of taking your year-end RMD, consider having it go directly to a qualified charity. That way you don’t have to pick it up as income and you still get the standard deduction
- Do year end contributions and possibly set up a donor advised fund, if you had a really good 2021 financially. Even if you don’t itemize, you can deduct $300 per taxpayer.
- Consider rolling over part of you IRA account to a ROTH IRA.
Source: IRS, IR 2021-217, November 8, 2021