Soaring inflation. The war in Ukraine. Yet another rise in Covid cases. With so much going on this year it’s been hard to focus on things like filing your taxes.
Nevertheless, the IRS still expects you to file your 2021 return and pay whatever you still owe by the filing deadline, which is Monday, April 18 for most taxpayers.
If you haven’t filed yet, here are answers to some key questions that will help you through the process:
Do I have to file by April 18?
Ideally, yes. But if that proves difficult – or you’re just not in the mood – drop what you’re doing this minute and file for an automatic six-month extension by using Form 4868.
Of course, there are some taxpayers whose filing deadline is later than April 18. They include residents of Maine and Massachusetts, whose official filing date is April 19. And the deadline is a month or more later for people living in federally declared disaster areas, as well as US taxpayers living outside of the United States on April 18.
If I do owe money, when is that due?
For most people, you have to pay any remaining 2021 income taxes that you still owe by the April 18 filing deadline, even if you get an automatic six-month extension to file.
What if I don’t pay on time?
You will have to pay even more than you owe, because you’ll be slapped with penalties and interest.
If you really can’t afford to pay on time, and you have a good reason for why, you can make your case to the IRS by attaching a statement to your return when you file. If the IRS accepts your explanation, it may waive the late payment penalty. At a minimum, you need to show that your failure to pay is not the result of “willful neglect.”
To show that, try to pay what you can when you file, even if it’s not the total balance. If that’s not possible and you’re really behind, you may be able to set up a repayment plan with the IRS.
What if the IRS owes me money?
If you file an accurate return electronically, and are owed a refund, the IRS will likely have that money sent to you or direct deposited into your bank account within 21 days of receiving your return.
You can check the status of where things stand by using the IRS online tool Where’s My Refund?
If you’re not legally required to file a 2021 tax return because your income was too low, you may want to file a return anyway since you’re likely due a refund thanks to the enhanced child tax credit and other tax breaks that you are eligible to claim even though you don’t owe income tax.
I was working remotely for much of 2021. Will that affect my taxes?
It depends. If you worked from a state other than the one where your employer is based, you could be subject to the income tax rules of two or more states.
At the very least you’ll likely have to file more than one state tax return for 2021, which will cost you more if you’re paying someone else to prepare your taxes.
And in some instances – primarily involving five states that have so-called convenience rules – you may even be double-taxed on the same income.
(Learn more here.)
The advanced child tax credit is so confusing. How should I handle that on my tax return?
Good news: You are not imagining things. The child tax credit is causing headaches for both filers and tax pros alike.
There were a lot of temporary changes made to the child tax credit just for 2021. For starters, it was raised to $3,600 per child ages 5 and under, and to $3,000 per child ages 6 through 17.
It was also temporarily made fully refundable for 2021, meaning you can get the maximum amount of the credit even if it exceeds your federal income tax liability.
But here’s where the real confusion comes in: The IRS likely has already sent you half the credit you’re entitled to (six months’ worth) through monthly checks sent out between July and December.
You should have gotten a letter from the IRS in the past couple of months detailing what you’ve been paid already. That’s an amount you will need to report on your return. And then you will have to claim the other half of the credit you’re owed, which you will get by way of a refund.
(Learn more here.)
I got an IRS letter saying it sent me a stimulus check. Is that reportable and taxable?
While the payment isn’t taxable, you should report the number from that letter on your 2021 return. The last thing you want is for there to be a discrepancy between the IRS records and what’s on your return. That will cause delays in processing your return and issuing your refund.
And you’ll want to use that number to work out whether the IRS actually owes you more by way of a recovery rebate credit, once you calculate how much more of the stimulus payment you’re due on the basis of your actual 2021 income. Taxpayers who earned less in 2021 than 2020 may be eligible for more money. The same goes for anyone who had a child last year. And for very low-income taxpayers who didn’t receive any payment, filing a return now is your chance to claim it.
I have cryptocurrencies. Do I have to report that?
Just buying and holding cryptocurrencies are not taxable events.
But if you sold cryptocurrencies, used them to buy something or were paid in crypto, those are taxable events and must be reported.
Virtual currencies are taxed as property, or as an investment, when you sell them. To make matters more confusing, using them to buy something technically counts as selling. So you will be subject to capital gains tax when you sell them.
If you’re paid in bitcoin or other crypto, on the other hand, that will be treated as taxable income to you. So will income earned from mining or staking.
And starting next year your crypto activities will be subject to third-party reporting – meaning both you and the IRS will get the same tax forms reporting your sales and income.
I can’t get through to the IRS and have a question. What should I do?
It’s been very difficult for taxpayers and tax pros alike to reach the IRS by phone because the agency is too understaffed to handle the volume of calls.
If you’ve already invested time combing through the information resources on IRS.gov to find an answer to your question, you might consider an in-person visit to a Taxpayer Assistance Center near you.
Normally you need to make a weekday appointment. But the IRS announced that many of its Taxpayer Assistance Centers will be open to walk-ins on the second Saturday of each month through May. You can find your local office here. Call first to make sure they’ll be open on the day you want to go.
What if my tax preparer makes a mistake on my return?
Honest mistakes can happen. But remember: You are responsible for the information on your return. So review your tax preparer’s work before signing off on it.
The US Department of Justice also cautions consumers to work only with someone reputable and competent. Otherwise, you could be left liable for unpaid taxes, penalties and interest.
Telltale signs a preparer may be scamming you: They ask you to sign a blank return, will not let you review your return before filing it, or want to deposit your refund in a way you don’t understand.