Last-Minute Tips for 2021 Taxes
The The Monday, April 18, 2022, deadline to file personal income taxes for 2021 quickly approaches. Below, I outline a few handy tips and checks that might aid in efficiently filing returns and, more importantly, expeditiously receiving refunds.
Before I get to rocking and rolling, inputting data and such, I always like to review my W-2s, account statements, donation receipts, and such. Paramount to doing this is having my paperwork organized and in one place. Executing this first step guards against my tax-prep software kicking me out due to inactivity, which frustrates me and leads to me making errors, while I search for a missing receipt or account statement. I also make sure I have my online account information – numbers, usernames, and passwords – handy prior to commencing preparation of my returns. The same process applies if someone else does your taxes, too.
If you have children and received a portion of your Child Tax Credit over the course of 2021, make sure you know the correct amounts received. You likely received one-half of $3,600 per child five and younger($1,800) and $3,000 for kiddos between six and 17 ($1,500). While the government forwarded all parents and guardians a letter stating the amounts they received, it’s always a good idea to verify these amounts. The IRS informed folks early this year that they anticipated errors regarding claims for the 2021 Child Tax Credit likely would define the primary culprit for delayed processing and, thus, postponed refunds this year.
Work-from-home and the investments it required for many taxpayers could result in increased 2021 deductions. Investigating the possibility that the sum of your deductions exceeds the Standard Deduction ($18,800 for single filers or $25,100 for joint filers) may involve a little more investment of time, but it could add up to substantial savings on your tax bill. If you engaged in a side-business that required travel or personal investment, these figures easily could exceed the Standard Deduction when combined with mortgage interest, property taxes, and other deductions. By the same token, double-check your income from any side jobs as well. Failure to report the income while claiming a deduction creates a red flag for the IRS.
Cryptocurrency gains need to be reported just as gains from stock, bond, mutual fund, or other investment sales need to be reported. I’ve seen estimates that as many as 40 million people in the U.S. traded or participated in cryptocurrency exchanges in 2021. If this figure holds true, the IRS may scrutinize crypto-derived gains at a level similar to that of home office deductions and Child Tax Credit claims.
Think about making an Individual Retirement Account (IRA) investment. If your employer doesn’t offer a 401(k) or other retirement plan or you made less than $78,000 ($129,000 for couples), you can make a $6,000 IRA contribution ($7,000 if you’re 50 and over) before 4/18/22 and claim it on your 2021 tax return. While growing your retirement savings balance, this contribution also reduces your 2021 taxable income. If you choose to make an after-tax, Roth IRA contribution the income limits scale up to $144,000 for individuals and $214,000 for couples.
Finally, double-check your return, especially for the routing and account numbers for the Direct Deposit of your refund. After taking all the time to prepare your returns (or paying someone else to do so), an extra few minutes to make sure everything adds up and that nothing’s missing always counts as time well spent.