8 reasons to wait to file your 2021 tax return
I'm married to a procrastinator. The most infuriating thing about it is not that he puts off things, but that occasionally he's right to not rush to finish projects. And yes, projects is a euphemism for tasks I've asked him to do.
Sometimes situations change, making moot what originally looked like the right move. Other times, the delay prevents making what would have been a wrong action. And in a few cases, if a job was done on my timetable, the changed circumstances would have meant redoing it.
So over the many years we've been together, I've learned to take deep breaths and give him some leeway. Some, not total. Just a little freedom to take a little more time on some things.
That even applies, in some cases, to tax filing. Here are 8 reasons to wait to file your 2021 tax returns.
1. To get your Advance Child Tax Credit letter.
Wait, isn't the Advance Child Tax Credit atop the post 8 reasons to file your 2021 tax return early? Yes. But here the issue is Letter 6419, the notice that the Internal Revenue Service is sending to folks who got half of this 2021 tax break last year. It will tell you how much of the $1,800 per child younger than age 6 and/or $1,500 per youngster age 6 to 17, you got as monthly payments from July through December. That's the amount you'll use to calculate the remaining Child Tax Credit you're due.
You never want to file any return where's there is documentation that the IRS is copied on, or in this case, sends you. If your records and the IRS' aren't the same when you claim the remaining Child Tax Credit, then your return and refund will be held up while you and the IRS sort out things.
2. To get your third COVID stimulus letter.
The IRS also is sending Letter 6475 to folks who last year got the third COVID-19 economic impact payment (EIP). The maximum possible amount of this payment, which started going out in March after the American Rescue Plan Act was signed into law, was $1,400 per person. Most people got that amount.
But since the payments were based on 2020 or 2019 tax return information, you might not have received the full payment. In that case, if your 2021 adjusted gross income allows for the max EIP, you can claim the remainder by filing for the Recovery Rebate Credit on your Form 1040. And you'll need the info in Letter 6475 to claim the correct amount.
3. To make sure you have all your tax statements.
If the only data you need to file is from your job's Form W-2, then you probably can (and should) file as soon as you can. But a lot of folks get a lot more tax statements than just a W-2 or the two special IRS letters being sent this filing season. These documents not only have data necessary to properly fill out a tax return, but they also are copied to the IRS.
Some issuers of these so-called third-party reporting statements are very efficient and get them out early each January. Most of them also are available electronically. You're likely to get an email notice that you can go to the issuer's website and download your tax information you need to file your return.
But some are like my hubby. They wait until the Jan. 31 deadline that issuers are given to send tax documents. And a few still snail mail them. In these cases, be patient. Like I said earlier, deep breaths help.
And you'll need even more patience if you get any of the tax documents that aren't on the Jan. 31 delivery schedule. In fact, these usually aren't issued until well into the filing season or even beyond, such as the K-1 form issued for partnerships, LLCs and S corporations. They don't have to be sent until March 15. If you need a K-1 to file, there's no way to do so until you get it.
Filing without the correct information means delayed processing, slowed refunds, an amended Form 1040-X return filing, and dealing with the IRS much more than you ever wanted.
4. To make sure you have all other tax information.
Formal tax statements that you need to file your taxes are issued in many cases, but not all. Sometimes in order to file your accurate earnings amounts, you'll need to check all your financial records, such as bank accounts or online payment apps.
For example, you got a 1099-NEC forms for the freelance contract work you picked up when coronavirus precautions at your main job cut your hours or closed thing down. These forms were sent to you because you earned $600 or more.
But some of your other earnings were less than the statement triggering threshold. A check of your bank statements, for example, could job your memory of that $599 your neighbor paid you for the new shelf you handmade to fit the awkward space in his garage.
Also make double check that you have all the details on potential tax breaks, such as medical expenses if you're still itemizing and claiming these costs. Or the expenses you paid for the care of your young children so you could work. You need these amounts — as well as the caregiver's tax identification number — to claim the child and dependent care credit.
Again, if you find such income or expenses after you file, well, you know the amended return drill.
5. To sort through your personal tax complexities.
If you're one of the taxpayers who gets lots of tax statements, that's an indication your return is more complex. And the more complicated your taxes are, the greater the chances that you'll screw them up if you're in a hurry to file.
If you have more involved taxes — multiple jobs, such as a night shift or shorter side gigs to supplement your main work's wages, or your own business or investments or a big, messy family — you'll probably need time to sort through all the related tax implications. In these cases, it's a good idea to start your return early, but then take your time contemplating your tax and filing choices and carefully reviewing the return before sending it to the IRS.
There's another complexity factor that’s beyond your control, tax laws. In addition to the usual suspects, the continuing complexity created by COVID-19 changes is still with us this filing season. There's the reconciling of the child tax credit and economic impact payments, as well as Paycheck Protection Program (PPP) loans, and employees who with no or different workplaces.
Laid-off employees who got unemployment must pay tax on the full amount. Congress didn't continue the special tax year 2020 exemption amount into 2021. And some employees who were able to work from home could discover they owe taxes to multiple tax collectors if their residences are in a different state or tax jurisdictions than their companies.
These complexities likely will require some time to work through.
6. To allow you to find a tax professional.
Complex tax considerations also could mean you need to hire a tax professional. That's a good idea, and not one to be taken lightly or done quickly. You'll need to determine the type of tax pro that best fits your needs. Then you must thoroughly check out potential tax preparer candidates.
The process takes time to do correctly, but in the long run, it's well worth it.
7. To ensure you understand your return.
I know, most of us just want the filing over with ASAP. I get it.
But it's important to know what's on your return because when all of us taxpayers sign our 1040s, either with a real John Hancock or an electronic signature, we all are attesting to its accuracy. That's true even if you paid a tax preparer to do the job. The ultimate legal responsibility is yours. And when you sign a joint return, the responsibility is on both of you, even when one spouse did the actual filling out of the forms.
So if you have questions about why a deduction was or wasn't claimed or how come your tax bill was bigger this year than last, ask. Ask your tax software's help option if that's how you're doing your taxes. Ask your tax-preparing spouse. Ask the tax professional you hired. And ask and ask and ask until it's totally clear.
8. To get your return right the first time.
All the previous seven filing procrastination situations discussed earlier in this post ultimately lead to one conclusion. Once is enough when it comes to doing your taxes.
But if you're too eager to file your return, you might have to do it again because in your rush you didn't include necessary information or made a mistake. Then you have to do it all over again by filing the previously mentioned and usually dreaded Form 1040-X as soon as you discover it. The longer the tax error sits there, the more tax penalties and interest on what you owe adds up.
However, if you can just let your original return sit there a bit before you file it, you'll give yourself time to take another look. Such review can be valuable. A bit of time and fresh eyes often make a mistake suddenly seem amazing obvious.
You also might find these items of interest:
- Why we put off filing our taxes and how to stop it
- Tax form signature error negates couple's nearly $13K refund
- Free File users have 8 software companies to choose from this year