Tax year 2021 brings a number of changes to consider when filing taxes, a few of the changes involving Advance Child Tax Credit, Premium Tax Credit and Recovery Rebate Credit. The IRS recently put out a statement on how tax planning can help avoid processing delays when filing taxes in 2022.
The first thing the IRS suggests you should do is gather and organize tax records. By having all the information and documents on hand, it will lessen the user’s errors which could cause processing and refund delays. Important documents and records an individual taxpayer needs are:
– Forms W-2(s)
– Forms 1099’s including unemployment compensation, dividends, interest, distributions from a pension, annuity or retirement plan
– Form 1099-K, 1099-MISC, 1099-NEC or other income statements for independent contractors
– Other income documents (such as brokerage statements) and records of virtual currency transactions.
In addition, many taxpayers have been receiving an Advance Child Tax Credit and/or Premium Tax Credit for 2021. The Advance Child Tax Credit is monthly payments that the IRS has been distributing to taxpayers with children for the second half of 2021. These payments will need to be deducted from the Child Tax Credit that gets reported when the tax return is filed. To determine how much of an advance payment a taxpayer received, they will be receiving a letter from the IRS that reconciles these amounts for 2021. For those receiving the premium tax credit, taxpayers will receive a Form 1095-A, Health Insurance Marketplace Statement.
Similar to tax year 2020, if a taxpayer did not receive an economic impact in 2021 they will be eligible to claim a Recovery Rebate credit on the 2021 tax return. The taxpayer will receive a separate letter, Your 2021 Economic Impact Payment, that will determine the eligibility to claim the credit.
It is important for taxpayers to update their address with the IRS if they have recently changed residences so the letters can be delivered correctly. If a taxpayer can not locate the letters or did not receive them, they can find the information by logging into their IRS account online. Here they can see the amount of their Economic Impact Payment received as well as the amount of Advanced Child Tax Credits received.
It is also important before year end for the taxpayer to check and see if they owed taxes or collected a large refund from the past year. If a person owed taxes last year, they might want to have additional amounts withheld or make estimated tax payments to steer clear of underpayment penalties. This is especially important for taxpayers who got married or divorced, had a child, or got a second job.
To make withholding changes, the taxpayer should complete Form W-4, and give a copy to their employer. The last quarterly 2021 estimated tax payment is due January 18th, 2022 which can be made through their online account or IRS.gov/payments. Please reach out to the MOD Ventures tax department for help deciding if a withholdings adjustment or estimated tax payment is necessary for 2021.
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