The IRS announced it is opening the 2021 individual income tax return filing season on January 24. (E-filed business returns are already being accepted by the IRS). Even if you typically don’t file until much closer to the April deadline (or you file for an extension until October), consider filing earlier this year. Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too.
Tax Identify Theft
In a tax identity theft scheme, a thief will use another individual’s personal information to file a bogus tax return early in the filing season and claim a fraudulent refund. Thieves like to file returns that they can get a large refund on using credits like the earned income tax credit.
The actual taxpayer discovers the fraud when he or she files a return and is told by the IRS that the return is being rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the legitimate one, tax identity theft can be a colossal hassle to straighten out and there will be a significant delay in processing the true refund.
For many, filing early may be the best defense: If you file first, it will be the tax return filed by a potential thief that will be rejected — not yours. And you will still get your refund!
Note: You can still get your individual tax return prepared and submitted to the IRS by most tax preparers including Wegner CPAs as early as January 24 if you have all the required documents. For those that need certain broker’s Form 1099s or Schedule K-1s, filing early may not be possible.
W-2s and 1099s
To file your tax return, you need all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2021 W-2 forms to employees and, generally, for businesses to issue Form 1099s to recipients for any 2021 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).
If you haven’t received a W-2 or 1099 by February 1, first contact the entity/business that should have issued it. If that doesn’t work, you can contact the IRS for help.
Benefits of Filing Early
In addition to protecting yourself from tax identity theft, another advantage of early filing is that, if you are getting a refund, you’ll get it sooner. The IRS expects most refunds to be issued within 21 days. However, the IRS has been experiencing delays during the pandemic in processing some returns. Keep in mind that the time to receive a refund is typically shorter if you file electronically and receive a refund by direct deposit into a bank account.
Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable or caught in mail delays.
If you were eligible for an Economic Impact Payment (EIP) or advance Child Tax Credit (CTC) payments, and you didn’t receive them or you didn’t receive the full amount due, filing early will help you to receive the money sooner. In the summer of 2021, the third round of EIPs were paid by the federal government to eligible individuals to help mitigate the financial effects of COVID-19. Advance CTC payments were made monthly in 2021 to eligible families from July through December. EIP and CTC payments due that weren’t made to eligible taxpayers can be claimed on your 2021 return. For any CTC payments received during 2021, the IRS will be sending Letter 6419 that will provide the total amount of advance payments received. This will be an important letter to include when gathering your tax documents together.
We are Here to Help
Contact us If you have questions or would like an appointment to prepare your tax return. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.