Accountants often advise clients to file taxes as soon as they can. Why that's recently changed
Tax experts usually advise people to file their taxes as soon as they can — it's the fastest way to get a refund and to know if you owe the IRS. Itcan also reduce your risk of fraud.
Then the pandemic hit.
Last year, sweeping lockdowns to curb the spread of Covid-19 hit in the middle of the tax-filing season, which led to the filing deadline being extended until July 15, 2020. This year, tax preparers and filers were looking forward to a more normal time until lawmakers added tax changes to the American Rescue Plan, which was signed into law by President Joe Biden on March 11.
The bill made changes almost a month after the IRS began accepting returns on Feb. 12, adding another layer of complication. That means there's a reason for many taxpayers to hold off filing — even if it means a delay to your refund.
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"There's a lot going on, and so there might be reasons to defer," said Richard Auxier, senior policy associate in the Urban-Brookings Tax Policy Center, adding that if you get something wrong, you'd likely have to go back and refile.
If you were one of the millions of Americans who had unemployment income in 2020, you may want to hold off on filing your taxes or, if you've already filed, amending your return.
The American Rescue Plan made the first $10,2000 — or $20,400 for a married couple filing jointly — of unemployment income tax free for those with adjusted gross income of less than $150,000.
The IRS on Friday said that people with unemployment income in 2020 who already filed should hold off on amending their return, as the agency will provide further guidance.
At the same time, it announced new instructions for those who had unemployment income in 2020 and had not yet filed. For paper filers, the IRS will provide the Unemployment Compensation Exclusion Worksheet, and is also working with the software industry to update forms for those who file electronically.
These forms will help taxpayers determine the correct way to tell the IRS that they should get the exclusion, which is reported separately from unemployment income.
Paper filers will need access to the form, and those who electronically file will need to make sure the program they're using has the documents. It may take some time for the industry to implement the new forms.
"I wouldn't hit send on a return right now until we get clarification on this, because I've got no basis to back it out at this point," said Edward Renn, a partner at Withers law firm.
If your income went up in 2020
Another reason to wait to file your 2020 taxes is if your income went up in 2020, making you ineligible for a stimulus check or lowering the amount you could receive from the federal government.
The IRS said Friday that it would first check 2019 returns for eligibility for economic impact payments, and then go to the 2020 return if it has been filed and processed.
That means that if you were eligible in 2019, you'd want to wait to file your 2020 taxes until after you receive the stimulus payment — either through direct deposit, a paper check or a debit card. Then you could file your 2020 return. The reason to do this? The IRS has said it won't claw back the stimulus payment, even if they seeyou wouldn't be eligible for the same amount based on the updated return.
To be sure, filing is the only way to get a refund if you're owed one, and many people this year may be eagerly awaiting the windfall.
Generally, filing earlier is the best way to ensure that you're getting any refund you're owed as quickly as possible. However, this year, many taxpayers might experience delays as the IRS is now dealing with both the tax-filing season and sending out a third round of stimulus cash..
And, even though the April 15 tax filing deadline is swiftly approaching, it is possible to get more time if you need it. You can always apply for an extension — the caveat being that if you owe money to the IRS, it would still be due April 15 and you could see a penalty if you don't pay by then.
The extra complexity this year may make it worthwhile to seek professional help.
"I advise this year of all years don't do this on your own," said Adam Markowitz, an enrolled agent with Howard L Markowitz PA CPA in Leesburg, Florida. "People would be stunned to know how much money would be left on the table."
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