Getting Ready to File Taxes in 2021: Part 1

Take Steps Now to Make Tax Filing Easier in 2021

Now is the time to take necessary actions in preparation for filing your 2020 federal tax returns timely and accurately in 2021. Special steps related to Economic Impact Payments will be new for this filing season.

This is the first in a series of reminders to help you get ready for the upcoming tax filing season and avoid the stress of a last-minute rush.

Steps You Can Take Now to Make Tax Filing Easier in 2021

You should gather Forms W-2, Wage and Tax Statement, Forms 1099-Misc, Miscellaneous Income, and other income documents to help determine if you are eligible for deductions or credits. You will also need your Notice 1444, Your Economic Impact Payment, to calculate any Recovery Rebate Credit you may be eligible for on your 2020 Federal income tax return.

Most income is taxable, including unemployment compensation, refund interest, and income from the gig economy, and virtual currencies.

If you have an Individual Tax Identification Number, you should ensure it hasn’t expired before you file your 2020 federal tax return. If it has, submit a Form W-7, Application for IRS Individual Taxpayer Identification Number, to the IRS now to renew your ITIN. Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits.

If you need to adjust your withholding for the rest of the year, time is running out. The Tax Withholding Estimator on IRS.gov can help determine the right amount of tax to have withheld from your paycheck. You should submit a new Form W-4, Employee’s Withholding Certificate, to your employer as soon as possible if you need to make adjustments.

If you received non-wage income such as self-employment income, investment income, taxable Social Security benefits, and in some instances, pension and annuity income, you may have to make estimated tax payments.

New in 2021: Those Who Did Not Receive an EIP May Be Able to Claim the Recovery Rebate Credit

You may be able to claim the Recovery Rebate Credit if you met the eligibility criteria in 2020 and:

You did not receive an Economic Impact Payment this year, or
Your Economic Impact Payment was less than $1,200 ($2,400 if married filing
jointly for 2019 or 2018) plus $500 for each qualifying child.

Interest Received on a Federal Tax Refund is Taxable

Those who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest totaling at least $10.

While the IRS tries to issue most refunds in less than 21 days, you should not rely on receiving a 2020 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer.

EITC/ACTC-related Refunds Should be Available by the First Week of March

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. The IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March if they chose direct deposit and there are no other issues with their tax return.

Helpful Tools

The Interactive Tax Assistant, available beginning in January 2021, is helpful in getting answers to a number of tax law questions. The ITA can help determine if a type of income is taxable, if someone is eligible to claim certain credits, or if they can deduct expenses on their tax return.

You can always check the status of your refund using “Where’s My Refund?“. The status is available within 24 hours after the IRS receives your e-filed tax return or up to four weeks after if you mailed a paper return. The “Where’s My Refund?” tool updates once every 24 hours, usually overnight, so you only need to check once a day.

The best and fastest way to get your tax refund is to have it direct deposited into your financial account. Taxpayers who don’t have a financial account can visit the FDIC website for information to help open an account online.

A Final Note

Warning: COVID-related Text Message Scam

Be aware of a new text message scam. The thief’s goal is to trick people into revealing bank account information under the guise of receiving the $1,200 Economic Impact Payment.

Here’s How This Scam Works

People get a text message saying they have “received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment… Continue here to accept this payment …” The text includes a link to a phishing web address.

This fake link appears to come from a state agency or relief organization. It takes people to a fake website that looks like the IRS.gov Get My Payment website. If people visit the fake website and enter their personal and financial account information, the scammers collect it.

What To Do If You Receive This Message

Anyone who receives this scam text should take a screenshot and include the screenshot in an email to phishing@irs.gov with the following information:

Date/time/time zone that they received the text message
The phone number that received the text message

The IRS doesn’t send unsolicited texts or emails. The agency will never demand immediate payment using a gift card, prepaid debit card, or wire transfer or threaten to have a taxpayer arrested.

In closing, contact your local tax professional if you have questions about or need assistance with the information needed to file your tax returns in 2021.

Stay safe. Stay well. Stay home.

Bayshore CPA’s, P.A. are your local Certified Public Accountants

and Tax Resolution Specialists conveniently located

in Mooresville, North Carolina

Image: Photo 155879645 © Deskcube – Dreamstime.com (2020 Planning); Illustration 93701708 © Karenr – Dreamstime.com (Scam Alert)