2020 was a wild year. What better way to close the door on 2020 than to file taxes and bringing home a decent refund. With the turmoil many households have had in terms of employment, tax season 2021 has taken on a new dynamic. As you get started on your tax preparation, 2021 brings a few new considerations, including the possibility of more stimulus checks.
According to www.efile.com, almost 92 percent of all tax returns were filed electronically last year. This was 10 million more electronic tax returns than the previous year. If the trend holds, we will see even more households file IRS taxes electronically. Thankfully companies are making this easier than ever, and you may even avoid paying much in tax preparation fees if you do most of the work yourself using the various software programs available.
To help you with your tax preparation, we have assembled a guide to the ins and outs of the 2021 tax filing season. Here is what you need to know:
- Tax Preparation in 2021
- Filing Taxes Online
- Recent Tax Law Changes
- 2021 Stimulus Checks and Your Tax Return
Tax Preparation in 2021
The 2021 tax filing deadline is Thursday, April 15, 2021. This is the date that your tax form, IRS form 1040 should be file. Many people use online tax software to file electronically, either on their own or with the help of a tax preparation company.
Wondering when you can file taxes in 2021? Tax filing will officially begin February 12, although you can complete and submit your return before that day. The IRS simply will not begin officially accepting returns – or sending out tax refunds - until after the 12th of February. If you need an extension on filing taxes, the IRS extended tax deadline is October 15, 2021.
Other entities have different tax filing deadlines.
- The deadline to file partnership taxes (Form 1065) is March 15, 2021. The extended partnership deadline is September 15, 2021.
- C corporations must file taxes (Form 1120) by April 15, 2021. The extended deadline for C Corporations (Form 7004) is October 15, 2021.
- S corporations must file taxes (Form 1120S) by March 15, 2021. The extended deadline for S corporations (Form 7004) is September 15, 2021.
The abovementioned tax forms are available here.
Tax season can be stressful. So, you should plan ahead to get ready. Here are the basic steps of the tax preparation process:
1. Gathering tax documents
The forms to complete can be mailed out. They can be also available electronically. Many online tax preparation services have forms available near the start of January.
2. Estimation and paying tax owed
Look through your tax forms from the previous year to check whether it is likely that you owe any tax. If you fail to pay the tax you owe, you risk interest and penalties. April 15th is the date when penalties start accruing. The IRS will charge interest on late or unpaid taxes, regardless of cause.
The tax return dates in 2021 are the same regardless of whether you owe taxes or if the IRS owes you a tax refund. But there is greater urgency if you owe the government tax funds. The government will not charge fees if you fail to claim what they owe you. They will certainly charge penalties and interest if you fail to send what you owe them. A 2021 tax refund estimator can help determine if you are likely to owe money so you can plan accordingly.
3. IRA (individual retirement account) contributions information
Form 5498: IRA Contributions Information reports your IRA contributions to The Internal Revenue Service (IRS). Contribution limits are $5,500 or $6,500 if you are age 50 or older, for both traditional and Roth IRAs (a type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes.
You will get a tax break for contributing to certain types of IRAs, and you can make contributions to your IRA after the end of the calendar year. For example, you can contribute to your IRA in March of 2021 and apply the tax savings on your 2020 tax form. You can make IRA contributions online with companies like Fidelity. Visit the website at https://fidelity.com/. Fidelity offers the following financial products:
- You can sell a Fidelity mutual fund in a mutual fund account and use the cash amount to contribute to a mutual fund IRA and buy a mutual fund.
- You can sell a Fidelity mutual fund in a mutual fund account and contribute the cash amount to a brokerage IRA.
- You can use cash from a brokerage account to contribute to a mutual fund IRA and buy a Fidelity mutual fund.
- You can contribute cash from a brokerage account to a brokerage IRA.
4. Filing for an extension
If there is a situation when you may miss a deadline for filing taxes or make mistakes because you're in a rush, you should request an extension. In order to get a 6-month extension, there are different forms:
- Partnerships, S Corporations, and C Corporations use Form 7004.
- Individuals use Form 4868.
- Nonprofit and charity organizations use Form 8868 to request a 3-month extension.
5. Be prepared to document major life changes to avoid an overpayment
Taxes are not static. Changes in your family or income situation impact your tax situation. When filing taxes, you should be prepared to document and provide information about the following:
- Changes to your marital status.
- Having a baby, or claiming dependents - reduces your tax rates, gives access to the Child Tax Credit, tax benefits like credits for education to the Earned Income Tax Credit.
- Educational expenses - The American Opportunity Credit and the Lifetime Learning Credit can help offset $2,000 or more of your qualifying educational expenses. If you're paying off a student loan, you can deduct up to $2,500 of your interest on your taxes. The cost to obtain certain professional certifications or designations can also be written off on your taxes.
- Retirement contributions and distributions.
- Inheritance is tax-free.
- Starting or finishing an expat assignment. Expats receive an automatic 2-month extension.
Tax preparation is a real challenge for most people who are not sure if they should seek professional assistance or do it themselves. Sometimes, it is better and easier to consult with a tax professional to learn what are state taxes and to pay your tax liability on time. There is a strong demand for tax preparation services because of the task complexity and importance.
There are many tax preparation companies on the market. It’s important to read tax reviews and tax complaints before committing to a company. By researching the experience of others, you may be able to avoid many of the more common frustrations or even tax scams.
If your discover later that your tax preparer acted improperly, you can report a complaint using the following methods:
- First, know that how you report misconduct depends on how the IRS has notified you of a concern. You might be notified by mail or a notice through your software. In some cases, you may discover the problem and notify the IRS of mistakes yourself.
- If you received a notice or a letter from the IRS, complete Tax Return Preparer Fraud or Misconduct Affidavit Form 14157-A and Complaint: Tax Return Preparer Form 14157. Mail the IRS with all supporting documentation and a copy of the notice or letter to the address contained in that notice or letter.
- If you did not receive a notice or a letter from the IRS, complete Tax Return Preparer Fraud or Misconduct Affidavit Form 14157-A and Complaint: Tax Return Preparer Form 14157. Mail them with all supporting documentation to the address where you would normally mail your Form 1040.
- If you suspect your identity was stolen, use Form 14039.
- If you want to report alleged tax law violations by an individual, a business, or both, use Form 3949-A. Submit to the address on the Form 3949-A.
While filing tax returns and gathering the necessary documentation, you should also consider the following:
- Are you using the itemized deduction or a standard deduction? Itemized deductions are claimed on Schedule A of Form 1040, which must be attached to your annual tax return. It is usually claimed in case of state and local taxes, gifts to charity, home loan interest, tax preparation fees, medical and dental expenses. A standard deduction is a fixed dollar amount, based on your filing status and age, that the IRS lets you take off (deduct) from your taxable income. Remember that the standard deduction was raised substantially in 2018 and that new amount still applies for 2019 taxes prepared in 2020.
- Business expenses. You can claim certain items as business expenses during the year and justify them to the IRS.
- Donations and dues may be considered and claimed as a tax deduction. Add receipts to your documentation and provide information on how much you have donated.
- Finance documents. Bank e-statements, credit card e-statements, retirement account information put in a tax folder. You will need information and data to support your numbers used for your taxes.
Filing Taxes Online
Tax forms can be complicated without some sort of financial assistance. The IRS offers a partnership with many companies to file simple tax returns online, which helps a large percentage of individuals file quickly and easily without needing to pay tax preparation fees.
How much money do you have to have to file taxes?
With certain exceptions, like self-employed individuals, if you made less than the 2020 standard deduction, or $12,400, you don’t need to file taxes. But even if you did make less than $12,400, it may still be very worthwhile to file taxes. If you made more than $12,400 in 2020, you are obligated to file your taxes.
What happens if I don’t file my taxes?
You can be in trouble with the IRS. You may be audited and penalized for avoiding your taxes. Additionally, you may find yourself in legal trouble as well depending on how aggressively the IRS chooses to pursue your case. But there are good things that come from filing taxes as well.
Many things like future social security eligibility and, perhaps more importantly in 2021, stimulus checks are sent based on tax filings. Your next stimulus check may be tied to your tax return, which is one more good reason to file quickly and easily online.
Of course, you don’t have to file your taxes online. You have the option to complete the paper tax forms or pay to have someone else prepare them for you. But even most tax preparation companies or accountants use some form of online software.
In many households, it just makes sense to take advantage of the available tax software. After all, tax software is designed to maximize your return (or minimize your payment to the IRS).
You have several options when it comes to filing your taxes:
- You can work with a certified accountant to file. This is a good option if you have a complicated situation involved multiple investments, overseas accounts, or business taxes. Accountants can have substantial tax preparation fees.
- You can tax advantage of free tax preparation software and services offered by various organizations in your area. These are often sponsored by groups like AARP or local churches.
- You can use discount tax preparation services through dedicated companies like HR Block or Liberty Tax in the storefront or other locations.
- You can use online tax preparation software to file taxes yourself with the online preparation service’s guidance. Many individuals find these online services to be efficient and low-priced or even free based on income.
The first three options above involve finding either paid or voluntary assistance with your taxes. This is where you can help yourself by reading tax reviews before committing to a company. Negative experiences described in tax reviews can help you choose a company that might be a better fit for you.
Generally, the more complicated your financial situation, the more expensive your tax preparation will be. What you want to avoid is overpaying a company or feeling like you were taken advantage of. Large companies that have been around for decades often have quality control measures in place. Smaller companies that seem to materialize overnight might be more suspicious. But large or small, trouble can still show up.
In this Liberty Tax review, one frustrated customer complained on PissedConsumer that “I havent received my state return and liberty tax preparer dont have the professionalism to resolve the matter for me but didnt mind taking my money.”
If you choose to file your taxes, you will simply create an account with an online tax company and enter the information from your own tax documents. There are many popular filing options including HR Block, Quicken, and Turbo Tax. If your tax return is simple, you may be able to file a free return. If you have a more complicated scenario, you will have to pay to use the more complicated version of the software to file.
You have the option to use the software independently, or you can pay for a bit of extra support to get answers or advice from the company’s representatives and tax professionals. Of course, even though the process should be simple, the reality can be more complicated for some individuals.
In this HR Block review, one customer tried to file easily using the online software. He soon discovered that “online was not able to file a 1099, only purchasing software can do this. I purchased software and was not able to file the 1099.” He wound up calling customer service again where he was placed on “hold for 80 minutes, then hung up on.”
To avoid issues like these with online tax preparation software, you should always:
- Read tax service reviews about software on a website like www.pissedconsumer.com.
- Try out a demo version and read properly all the details about the product.
- Consider using the IRS Free File to prepare and file your federal income tax return for those who qualify or the IRS Free Fillable Forms for all taxpayers. These free tax preparation online resources are affordable and secure.
- Consider using the IRS Volunteer Income Tax Assistance and the Tax Counseling for Elderly programs which are developed to provide free tax help and e-file for taxpayers who qualify.
Recent Tax Law Changes
2020 brought many changes and tweaks to the tax laws, although most will affect only a narrow range of households. The most sweeping changes to tax laws occurred in the 2019 tax filing season, and in the 2021 tax filing season, we are seeing adjustments to various limits and brackets. We break down the more notable tax law changes for filing in 2021.
Recovery Rebate Credits
The first COVID stimulus payment was technically a prepayment of a tax credit for 2020. If you were paid less than the full amount due to your tax situation on your 2019 return, you should see an additional credit as you file your 2020 taxes. If you were overpaid based on the new calculations, you will not need to refund the extra funds.
Required minimum distributions for retirement accounts was increased to 72 this year. Individuals over 70 can still contribute to their IRA accounts, and families with new babies can withdraw from their IRA without penalty. Also, up to $100,000 of withdrawals from retirement accounts for coronavirus relief is not submitted to taxes.
Other adjustments that occurred for 2021:
- Tax brackets were adjusted for inflation.
- Standard deductions were raised by $200 in most cases for inflation.
- Income thresholds for paying capital gains taxes increased slightly.
- Charitable cash donations up to $300 can be deducted without itemizing.
- Self-employed tax credits are available if you couldn’t work due to COVID-19
2021 Stimulus Checks and Your Tax Return
Will there be another stimulus check? Many people are waiting to hear any stimulus check update, especially if the stimulus checks they did receive were for amounts less than what they expected earlier in 2020. Here is the latest update on stimulus check amounts and how it relates to the 2021 tax filing season.
If you received less than you should have in either of the stimulus payment rounds from 2020, you can claim that money by simply filing your taxes as you normally would for the tax year. The stimulus amounts were prepaid credits from the 2020 CARES Act. The payments sent in April or in December of 2020 were limited by the income reported on your 2019 or 2018 tax return. That income may be very different than how much you’ve earned this year.
If you never received a stimulus check or you received less than you should, the difference will be made up as a credit on your 2020 tax return. You just need to claim the Recovery Rebate Credit.
A tax credit reduces the amount of taxes that you owe, so the amount of the stimulus payment you should have received will offset any taxes you owe or be returned to you as a tax refund. Additionally, the Recovery Rebate Credit will also cancel out any taxes and payout the difference as well up to the full calculated amount.
To claim the credit, you will need to file 1040. You will also need IRS Notice 1444 and IRS Notice 1444-B that arrived after your stimulus check. If you didn’t get a stimulus, you won’t need either notice. Even if you did not earn any money in 2020, you are eligible for a stimulus payout. You will simply need to claim zero as your income on the tax forms and then complete the Recovery Rebate Credit questions on the IRS form 1040 or through online software.
Since you will not be paying any taxes and there may be additional stimulus payments in the future as the United States works to navigate its way through the Coronavirus pandemic, you have nothing to lose by filing your taxes. Take advantage of the IRS Free File service and you will be able to file quickly and easily online.
Tax season arrives every year, and you should always be prepared. Keep track of your records and be ready to file as quickly as possible to avoid late fees and take advantage of fast tax refunds and possible stimulus payments. As you prepare your taxes in the 2021 tax filing season, be mindful of how many tax scams there are this time of year as well.
To avoid falling prey to a tax scam, know what you’re looking for and stay cautious. Take precautions when possible like:
- Reviewing all tax documents prepared on your behalf.
- Reviewing tax companies and preparers before providing them your personal information.
- File quickly to avoid letting someone steal your refund.
- Avoid speaking to anyone on the phone about tax matters. The IRS will not contact you by phone, only by mail. A tax scam by phone is easy to spot since the IRS will never call.
If you do find yourself in trouble or the victim of a tax scam, you can report the situation here on PissedConsumer to help warn others and possibly find a resolution with the company.
By Rebecca Garland
Business and Education Expert
Rebecca Garland, M.S. is a business and education writer. She holds secondary teaching certifications in six areas, has a degree in Business, and earned a Master’s degree in Library and Information Science. As an expert, Rebecca has been working with international clients since 2005.
*The company ratings on the PissedConsumer website are calculated using a mathematical algorithm that evaluates the information in the company’s profile. The algorithm parameters are: users’ rating, the number of resolved issues, the number of company responses and more. The PissedConsumer algorithm is also subject to change in the future.
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