It is January, a new year and time to think about filing taxes with the IRS. Here are some things to know.
The IRS has not yet announced a start date for the 2021 filing season. Income tax returns cannot be filed electronically or by mail until the IRS has opened the season.
Last year, the IRS announced on January 6, 2020, that the filing season would open on January 27, 2020. Most forms -W-2 and other tax forms are due to taxpayers by February 1, 2021.
We know that stimulus checks will not be considered income, and taxpayers will not owe tax. “The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2020 or 2021 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.”
Please do not be tempted to apply for a tax refund loan, typically known as RAL (refund anticipation loan), if you are not in a crisis for the money. A RAL is a loan based on the anticipated amount of your federal income tax refund. Many tax filing services will offer you RAL only if you file with their service. Your loan amount will be the value of your anticipated refund minus fees and or interest charges.
Be VERY careful with refund anticipation loans. An apparent positive attribute of the loan is you get money quickly before the season even opens. Another feature is that once the lender receives your refund, the loan is paid. But, what happens if your tax refund is smaller than the anticipated income tax return? You now will have an outstanding loan that will need to be paid back.
Taxpayers also need to know: By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they are due by giving the IRS more time to detect and prevent fraud.
While waiting for the IRS to decide when to open the income tax season, now is a great time to get income tax documents together. Once the income tax season opens, being organized and prepared will facilitate a seamless transition to filing an income tax return. The IRS recommends that taxpayers file their returns electronically to reduce errors and receive refunds more quickly.
Be careful in your decision-making when it comes to filing income taxes. Choosing e-file and direct deposit for refunds remain the fastest and safest way to file an accurate income tax return and receive a timely refund. Once the IRS opens the tax season, IRS issues more than 9 out of 10 refunds in fewer than 21 days.
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