Here’s how to get a good start for the next tax season
After restrictions from last year’s pandemic, many Americans are ready to take the vacation. But people should also invest some time to start the next tax season.
There are still opportunities to reduce tax bills, such as 401 (k) contributions, harvesting tax losses, charitable giving, or Roth individual retirement account conversions.
However, filers should also take steps to avoid headaches amid the recent wave of tax law changes, according to advisers on CNBC’s 2021 FA 100 list.
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To get started, filers can explore their online account with the IRS to view tax balances, payments, copies of certain notices, and more.
Some taxpayers may opt for an identity protection PIN code to prevent someone from filing a fraudulent return by social security number or individual tax identification number.
“It’s another way to protect yourself against identity theft,” said John Dahlin, tax director at IFA Taxes, a division of Index Fund Advisors in Irvine, Calif., Ranked 72nd on the FA list. 100.
Many taxpayers fear that they will receive an invoice when they file their tax return. But someone who expects to owe can always adjust their payroll deduction or make additional payments.
And retirees worried about surprise withdrawals could withhold part of this year’s required minimum distribution, Dahlin said.
More and more registrants have purchased free or low cost coverage in 2021 through the market with extensive health insurance subsidies.
However, with income limits, someone might have to repay those tax credits if they earn more than expected, Dahlin said.
It’s much better not to be surprised when all of a sudden it’s due.
Tax Director at IFA Taxes
High incomes can estimate their income now to see if they have crossed the thresholds. And if they have to pay it back, they can save money until April to ease the sting.
âIt’s much better not to be surprised when all of a sudden it’s due,â Dahlin said.
Child tax credits
Last year’s stimulus checks triggered millions of delays and error notices as the IRS struggled to reconcile payments, and many taxpayers are still waiting for a resolution.
The IRS had a backlog of 5.9 million unprocessed individual returns as of Nov. 12, including 2020 returns with errors or requiring corrections due to stimulus payments, according to the agency.
And many tax professionals anticipate the same problems, including possible repayment delays, for recipients of the child tax credit.
However, filers can avoid the flags by keeping crisp records of advance payments, including those listed in the Child Tax Credit Update Portal.
âIt’s important to save some kind of record,â Dahlin said. “Whether it’s banking, a copy of checks or letters.”
Recipients are expected to receive Letter 6419 in January, summarizing payments for 2021, according to the IRS.
While wealthy families also contemplate the tax season ahead, their advisors often use a multi-year approach, such as donating to family or charities through trusts, which they might consider finalizing in 2021. , depending on clients’ goals.
âWe’ve been talking to families for a long time,â said Dave Jones, director of real estate strategy at Bailard in Foster City, Calif., Which ranked 97th on the FA 100 list.
However, there are often annual decisions, such as handling income from the sale of a business or other liquidity events.
âThere is currently a big element of wealth transfer for families,â Jones said, explaining how some clients could take advantage of the higher inflation-adjusted estate tax exemption in 2022 to transfer additional funds.
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