Navigating tax-filing season may seem like tiptoeing through a financial minefield, but the complicated tax code could actually mean bigger refunds on 2021 taxes for taxpayers who pay attention to detail.
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As the Internal Revenue Service is set to begin accepting 2021 tax returns on January 24, the two CNN Business and MarketWatch offered the following tips to help filers maximize refund potential and hopefully generate cash flow in late winter or early spring.
1. Produce early and accurately.
So many details associated with the tax return are beyond the control of the filer, which is why Jerry Zeigler, an enrolled agent and financial advisor who owns JZ Financial Management, says MarketWatch that filers should prepare early and file a return that passes without delay, accessing all deductions and credits that can reduce tax payable and increase the size of refunds. Specifically, filers should keep track of all correspondence received from the IRS, as some letters (detailed below) will contain the documentation needed to accurately file a 2021 return that avoids disputes and delays.
2. Don’t sleep on the increased care credit.
The child and dependent care credit has been significantly expanded to 50% for the 2022 reporting season, up from just 35% in previous years. According to CNN Business, the expanded credit could lower your tax bill, increasing your refund, up to $4,000 for one dependent or $8,000 for two or more. In contrast, prior credit benefits capped at $1,050 and $2,100, respectively.
3. The direct Child Tax Credit payments made in 2021 were only about half of what is due to you.
For the first time, the IRS has made monthly advance payments on this credit which has been temporarily increased to $3,000 per child ages 6-17 and $3,600 per child ages 5 and under. The monthly installments were paid between July and December, which means you can still claim the other half on your 2021 return. In turn, the IRS sends letter 6419, detailing the amount you have already received, which you should use to reconcile the amount owed to you, CNN Business reported.
Be careful though, because the installments have been calculated according to your 2020 or 2019 income and your family situation. The final calculation, however, will be based only on 2021 information, which could vary significantly if situations and circumstances have changed drastically over the past two years, the outlet reported.
4. Claim recovery discount credit if you were ignored.
The IRS has issued three rounds of economic impact payments to eligible Americans since the start of the coronavirus pandemic, and the third and final round was distributed in 2021. Filers who received this third payment will receive letter 6475 detailing the amount received, and that the total must be declared on your declaration, CNN Business reported.
Individuals who were not eligible for a third Economic Impact Payment, or who received less than the full amount, may be eligible to apply for the 2021 Recovery Rebate Credit based on their information for the year 2021 tax bill,” the IRS said.
5. Don’t leave the earned income tax credit on the table.
The US bailout has tripled the maximum EITC available to $1,502, and for the first – and only – time, low- and moderate-income filers who don’t have eligible children can qualify.
The expansion of the EITC pool means that childless workers from the age of 19, as well as those aged 65 and over, are eligible for the EITC in 2021 if they meet the income requirements. To qualify for the credit, income earned in 2021 must be less than $21,430 for an individual or $27,380 if married and filing jointly, CNN Business reported.
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