The IRS announced that the opening of the 2020 individual income tax return filing season will be Friday, February 12. This is the date that 2020 returns can be e-filed with the IRS. This is later than in prior years because of a tax law change that was signed into law at the end of 2020. The tax law significantly changed some of the tax forms and required some re-programming of IRS software. Even if you typically file closer to the April 15 deadline consider filing earlier this year.
Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too.
Minimize Tax ID Theft
In a tax identity theft scheme, a thief uses another individual’s personal information (SSN, name, address) to file a fraudulent tax return early in the filing season and claim a fake refund that is then diverted to the fraudster’s accounts.
The ID theft is generally not discovered until the real taxpayer tries to submit the actual tax return. The IRS notifies the taxpayer that their tax return is being rejected because a return with the same Social Security number has already been filed for this tax year. While the taxpayer ultimately can prove that his or her return is the legitimate one, tax ID theft can be an enormous hassle to straighten out and any refund will be significantly delayed.
For some taxpayers, filing early may be the best defense. By filing early, the rejected return will be the one filed by the potential thief— not yours. Saving you time and therefore receiving your refund sooner.
Finally Get your Stimulus Payment
If you have not received your Economic Impact Payment (EIP), or you didn’t receive the full amount due, filing early will help you to receive the entitled amount sooner. As part of the CARES Act and the Consolidated Appropriations Act, 2021, stimulus payments (EIP) were to be sent/direct deposited to eligible individuals to help mitigate the financial effects of COVID-19. If eligible taxpayers did not receive the full amount they were entitled to (could have been $1200 plus $600), the taxpayer can claim a credit on their 2020 tax return for the missing amount.
Get Your Refund Early
In addition to protecting yourself from tax identity theft, filing your tax return early means receiving your refund quicker. The IRS expects most refunds to be issued within 21 days. If you e-file, the time frame typically is quicker (10days) if you use direct deposit to your bank account.
Direct deposit of your refund also avoids the possibility that a mailed refund check could be lost, stolen, returned to the IRS as undeliverable or caught in other mysterious mail delays.
While the IRS will not accept tax returns until February 12, there is no need to wait to get started on preparing your return now if you have all the required 2020 tax documents. That way, when the IRS starts processing returns, you will be ready to file.
Make Sure You Have all Your W-2s and 1099s
To file your tax return, you need all your W-2s and 1099s. January 31 is the usual deadline for employers to issue 2020 Form W-2 to employees and, generally, for payers to issue Form 1099s to recipients of any 2020 interest, dividend or reportable miscellaneous income payments (i.e., made to independent contractors and/or landlords).
If you have not received a W-2 or 1099 by February 1, first contact the entity that should have issued the 1099s. If you are unable to get in contact with the entity, you can contact the IRS for assistance (good luck getting through as the IRS phone lines are really busy now). Finally, many investment brokers will not issue consolidated 1099 statements until late February (they have received a special extension of time to issue their consolidated 1099 statements).
If you have questions or would like an appointment to prepare your return, please contact your Wegner CPAs tax advisor.