The start of a new year means resolutions and a fresh start.
It also means a new tax season.
While many Americans may not want to think about their taxes until closer to the spring deadline — which this year is April 18, due to federal holidays — it makes sense to start preparing to file now.
Filing as soon as you’re able may protect you from tax fraud, according Kelley Long, a certified financial planner, CPA and member of the American Institute of CPAs’ Consumer Financial Education Advocates.
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If someone has stolen your identity and files a tax return in your name to claim a refund, you will run into trouble when you submit your actual information, she said.
Then, it’s your responsibility to prove to the IRS that the return filed in your name was fraudulent and give them the correct information. The agency will investigate, which will delay getting the money you’re owed.
“You don’t want to worry about that extra step of proving that someone stole your identity,” said Long.
Fastest way to get a refund
Many Americans may be eagerly awaiting a tax refund, which could be the biggest windfall they see all year.
The fastest way to get that refund is to file your taxes as soon as possible, according to Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center.
“There’s no benefit to waiting,” she said.
And, if you find that you owe money, filing earlier gives you time to make payments to the IRS before the April deadline, after which you could be subject to penalties, said Anjali Jariwala, CFP, CPA and founder of FIT Advisors in Torrance, California.
It also gives you some time to adjust your withholding so that you don’t have a surprise tax bill in the future.
“People really hate writing big checks to the IRS at the end of the year,” she said.
Now is the time to ask for professional help
Of course, many Americans won’t have the paperwork they need to file their taxes until the end of January. Still, they should start gathering the materials they can now and decide if they might want to enlist professional help to file this year.
Because of the pandemic, this year may again be complicated for some taxpayers such as families who received the child tax credit and need to reconcile payments to get the second half of the benefit. In addition, those with lower incomes may be eligible for the earned income tax credit and other benefits.
“If you are seeking the help of a professional tax preparer or a CPA to file your taxes, they may be super-bottlenecked [in April],” said Sheneya Wilson, CPA and founder of Fola Financial in New York.
Things to collect
Start by looking over your 2020 tax return, experts say. That will give you a guideline of what you needed to file last year, which is a good place to start.
Generally, you need to gather any W-2s from last year or 1099s, if you’re an independent contractor, freelance or have a side hustle.
Those that had any period of unemployment in 2021 should look for a form 1099-G, which will be sent to them from their state unemployment department. They should be prepared to pay taxes on those benefits as well. Unlike in 2020, there is no tax break for people who got unemployment benefits this year.
If you’re a family that got the child tax credit, look out for letter 6419 from the IRS. Those that got a stimulus check in 2021 should also look for letter 6475, due from the agency in late January.
In addition, if you didn’t get a stimulus check in 2021, you may still be able to claim it when you file your taxes for the year. If you became eligible due to a change in income, or don’t traditionally file taxes, you can get the money by claiming the recovery rebate credit on your tax return.
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