In the words of Ben Franklin, “in this world nothing can be said to be certain, except death and taxes.” Tax filing can be daunting, and with the season officially underway, experts are warning taxpayers of delays and complications for yet another year.
This only means that being organized and preparing early is even more important than in the past. Here’s a helpful list of everything you need to know about the 2022 tax season.
Prepare Early
The best way to prepare for tax season is simply that: prepare. Filing early gives you the time you need to collect the documents and information required to claim your deductions. It also helps you eliminate mistakes that will cause delays once you file. Experts say taxpayers who wait until the last minute risk accumulating significant wait time.
They also emphasize the importance of filing electronically due to the majority of delays being on the paper process. First step: calculate how much in taxes you withheld this year, and how much in credits you’re expected to receive. With this, you’ll have a better idea of your tax refund amount and what you may owe, which may also help you catch any mistakes early on.
New This Year
In 2021, you may have been eligible for the Child Tax Credit, a Third Stimulus Check, or Unemployment Benefits offered as a result of the pandemic. If you’re unsure, here’s what’s new.
Child Tax Credit: Each household could claim a credit of up to $3,600 per child under age 6 and $3,000 per child from ages 6 to 17. Pay attention when filing because if the credit exceeds taxes owed, your family may receive the excess amount as a refund.
Third Stimulus Check: The third installment of stimulus checks were worth up to $1,400 per every qualifying individual in their household. If your income declined after receiving your money, you may be eligible for additional money. But remember: The IRS will not automatically calculate the 2021 recovery rebate credit for you, meaning it’s up to you to claim your rebate.
Unemployment Benefits: Unlike 2020, unemployment benefits in 2021 are subject to full taxation. Most of these will automatically be withheld on your checks, but it could add to your tax bill if they don’t.
Whether you’re working with a professional or preparing your taxes independently, filing early gives you more flexibility and peace of mind.
Key Dates
The IRS starts accepting and processing 2021 tax returns on January 24th. That means that you can now send in your tax returns until the deadline. April 18th is the deadline to file your 2021 tax return OR to request a six-month extension (you still need to pay taxes you owe even with an extension). If you filed for an extension, you have until October 17th.
Necessary Documents
As we know, filing taxes requires A LOT of documents. Whether you’re doing this yourself or have the help of an advisor, make sure that you have the proper evidence to show your proof of income. Below are most of the key documents to have:
W-2 Forms: This is a form that tells you how much you’ve earned in the past year and how much in taxes you withheld.
1099 Forms: Commonly used by independent contractors or unemployment benefits. There are several types of 1099 forms, but they all report certain types of income that a taxpayer has earned, in addition to reporting income earned from savings or investment accounts. And if you transferred a retirement account or took a distribution from one, be on the lookout for a 1099-R.
1098 Forms: This shows how much you paid in interest on a mortgage or student loan.
Proof of write-offs (i.e. medical or childcare expenses)
How to File
Being organized and preparing early is important regardless of how you decide to submit your taxes to the IRS.
There are three common ways to file your taxes:
Complete your 1040 by hand and mail it (not recommended)
Use a tax software and file online (sometimes has value)
Hire a tax expert to do the work and file on your behalf (always the best value with the right expert).
There are a few folks who can file for free with the IRS Free File program. It provides free software to file online, but only for simple tax returns (or returns that have one type of income and no itemizing) and individuals who make less than $73,000 AGI. Volunteer Income Tax Assistance (VITA) is another option for low-income, disablited, or eldery preparers.
For most of us, we can file our taxes using either a tax-software program like TurboTax or outsourcing to a tax-expert — typically a Certified Public Accountant (CPA).
Online software provides easy step-by-step guides to help gather and file your federal and state taxes at a fairly cost-effective price. This option also tends to be the fastest in filing and if you are receiving a refund. But online software lacks personal touch. If you are not sure where to enter your charity involvement or your teachers/business supply expense, you have to spend the time figuring out where it goes, and if you are even eligible for it. Another frustration of online software is the analysis, ensuring you are completing the taxes properly with the most deductions or credits as possible.
Hiring the right tax-expert is the best value approach for filing your taxes. A CPA tends to be the higher cost approach but you get back so much more in reassurance, stress relief, and time. And they are there to not only help with the initial filing but if the IRS decides to send you a letter to confirm your taxes.
Other Benefits of Hiring a Tax Professional
Your CPA will also get to know you personally over time, allowing them to bring up tax saving strategies or develop an analysis to save on your future taxes. Outsourcing also gives you your time back to be with your family or do the things you actually like to do. No need to stay up late or block time on the weekends completing the online software sections during tax season.
But the most beneficial part, and what I hear most, is the reduction in stress. Knowing you hired an expert to complete your tax filing accurately is such a weight off your shoulders. No one wants to get a letter from the IRS about your latest filing — but if you do, almost everyone contacts or searches for CPAs near them. If you just do that from the beginning, you can be more confident, feel less stressed, and enjoy the better things in life from the get go.
Timeline
If you do submit your return electronically and without errors, you can expect a refund within 21 days, as long as you choose direct deposit. But the exact timeline will depend on how you file.
E-file with direct deposit: 1-3 weeks
Paper file with direct deposit: 3 weeks
E-file or paper file with a refund check in the mail: 6-8 weeks
Preparing for tax season doesn’t have to be difficult — if you prepare early. Leaving your taxes to the last minute can lead to forgotten claims and accidental errors, which mean a slower tax return. If you’re worried about filing on your own, work with a professional to make sure that you get your questions answered.
K Wealth Advisors If you’re looking for guidance as you navigate the 2022 tax season, contact K Wealth Advisors to schedule a GoodFit meeting, and discuss your goals and options today. #KWA
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