Soaring inflation. The war in Ukraine. Yet another rise in
COVID-19 cases. With so much going on this year it's 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 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 18th?
Ideally, yes. But if that proves difficult — or you're just
not in the mood — 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 U.S. 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?
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?
The IRS recently mailed Letter 6475 to taxpayers who
received a third round stimulus payment, which the agency started sending out
in March 2021.
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.
I have cryptocurrencies. Do I have to report that?
It depends.
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.
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