American taxpayers are being encouraged to start preparing now to make filing their taxes easier in 2021. With 2020 seeing a lot of changes to the usual tax-filing rules, the Internal Revenue Service (IRS) wants to make sure taxpayers are ready to file taxes promptly and accurately in 2021, so that people don't miss out on tax benefits or make unnecessary mistakes.
So what steps are Americans being urged to take ahead of firing up the best tax software, and what should you be looking out when filing taxes in 2021?
How to file taxes in 2021
With COVID-19 an ongoing problem, taxpayers are being encouraged to “stay home and stay safe” and use the online tools available on the IRS website if they can. If you’re happy filling out tax forms electronically, you can do so and then submit your returns either by mail or online.
Almost everyone can file for free direct with the IRS, while the service also has resources for directing you to a tax preparer if your finances are not so straightforward. Many people also have their own tax software at home which will guide you through the entire process, in a similar way to which the best personal finance software can help you keep on top of your finances overall during the year.
How to prepare for filing taxes
A vital first step is to start gathering all your tax records together. Not only will this make preparing a tax return easier, it could also bring to light potentially overlooked deductions or credits. As most income is taxable, you should locate documents such as Form W-2 from employers, and Form 1099-MISC if you’re self-employed, a freelancer or a gig-economy worker.
If you have savings, you’ll need a Form 1099 from banks and other payers to show income from interest, while there are also particular forms covering rental income received by landlords, and investment income you might receive if you’ve been successful in stock trading. Should you have expenses that you’re allowed to deduct, such as mortgage or student loan interest, Form 1098 will have all the information that you need.
Stimulus checks and tax filing
With stimulus check 2 seemingly on the cards for early 2021, a new IRS form for this year relates to the first stimulus check that was paid earlier in 2020 as part of the initial Government response to COVID-19.
Notice 1444, Economic Impact Payment, shows how much of the stimulus payment you received in 2020, and if you didn't receive the full amount you were entitled to, will allow you to claim the Recovery Rebate Credit when filing in 2021. Those who didn't receive a stimulus payment at all might also be eligible for the Credit when they file their 2020 taxes in 2021.
As well as staying on the right side of the law, if you file correctly and on time, you can expect to receive any tax refund you’re due in a timely manner too. Given the impact of COVID-19 on many household finances, it’s money that could be more welcome than ever, and may prevent the need for people looking to personal loans and credit cards if times are tough.
If you received a tax refund in 2020 you may also have been paid interest, which is actually taxable and must be reported on your tax return. If you received refund interest totaling $10 or more, look out for Form 1099-INT which the IRS will send to you in January.
When are taxes due?
Assuming things revert to normal, individual and corporate tax returns must be filed for the 2020 tax year by April 15, 2021. We make this caveat because the disruption caused by the coronavirus outbreak saw the usual April 15 deadline pushed back by three months this year to July 15.
With vaccines being rolled out, and the world as a whole learning to live as normally as it can amid the health crisis, it seems highly unlikely the deadline will be extended in 2021. That said, if the date does start creeping up in the new year, and you find yourself unable to file on time, you can request a six month extension to file. However, you’ll still have to pay your taxes by the original deadline if you want to avoid the unnecessary expense of penalties and interest.
When can I file taxes in 2021?
While taxpayers are being urged to prepare themselves for the April 15 deadline, it’s not yet possible to actually start filing your taxes just yet. If you are ready to go, it’s likely the IRS will start accepting electronic returns sometime during the last two weeks of January. An announcement on the IRS website confirming the exact date can be expected before the end of 2020.