The deadline for filing your taxes has finally arrived.
The process of navigating tax season is changing, with the COVID-19 crisis and new laws expanding the benefits you can receive and influencing what you will need to report in the future.
“Keeping records and filing taxes on time — even if you can’t pay — are probably the two most important messages people need to keep in mind,” said Christine Speidel, associate professor at the faculty. of Law from Villanova University and Director of its Federal Department. tax clinic.
Here is an overview of some of the questions that may arise when preparing your federal taxes.
What happens if you don’t file your taxes on time?
The IRS will send you a penalty notice for failure to file if you owe money. The agency says this penalty is calculated based on how late you file and how much you owe in unpaid taxes, which equals 5% of the total for each month, or part of a month, a return is late. . The sentence is capped after five months.
You will also be hit with a penalty for failing to pay before the deadline, which is 0.5% of the unpaid taxes for each month, or part of a month, that you do not pay.
“If after five months you still have not paid, the penalty for failure to report will be maximum, but the penalty for failure to pay will continue until the tax is paid, up to 25%”, according to the IRS rules. The IRS says it will also charge interest on penalties.
“Even if you can’t pay the full amount, the IRS will still take your money, so you can split your bill into as many payments as you can. If you can only send a little now, send a little now,” Speidel said. “Both the late filing penalty and the late payment penalty are calculated based on your balance owing, so if you can reduce that balance over the next few months, that will really help you on the penalties and interest.
Some people are not required to declare because they earn less than a certain amount, which can vary depending on age and marital status. (For single filers under 65, the threshold is $12,550, while a married couple filing jointly must earn $25,100 to be required to file.)
Plus, there’s usually no penalty for not filing if the government ends up owing you a refund. However, the IRS explains that there are reasons why you should file even if you don’t have to. If you are owed a refund, you only have a limited time – three years – to file and claim it. You might qualify for certain benefits, like the Child Tax Credit, and students and part-timers might qualify for a refund without realizing it.
If you need to, you can file a request for an extension of time at no additional cost.
How to submit an extension?
You can request to extend your deadline to October 17 via IRS Form 4868 by mailing it or by submitting it electronically via the IRS Electronic File Service using your tax software. or through a tax specialist who uses the electronic file.
The IRS also has a list of companies it partners with that will help you file a free extension, which is available here. They include TaxAct, FreeTaxUSA and FileYourTaxes.com
Although you can request an extension, you must still pay any taxes you owe by April 18. “You should estimate and pay all taxes due by the usual due date to avoid possible penalties,” according to the IRS website.
Can you still receive the third relief check if you haven’t received one?
Yeah. The IRS is urging people to consider filing, even if they don’t normally do so, to receive certain benefits, including that third check.
If you haven’t received the check, also known as an economic impact payment, you may be able to claim a recovery rebate credit. These credits are worth up to $1,400 per person. If you had a child in 2021, you may also be eligible for this credit.
Can you still benefit from the child tax credit?
You can also still receive the credit, which was distributed to parents in monthly installments from July to December last year. While the deadline to apply was mid-November, you can still claim the full credit by filing your taxes, even if you don’t earn income. (You should have received these payments automatically if you have already filed taxes for 2019 or 2020 or signed up to receive a relief check.)
The benefit has increased from $2,000 per child on an annualized basis to $3,000 for children 6 to 17 and $3,600 for those 5 and under. A full list of other extended benefits is available here.
The IRS handed out installments of up to half of the eligible amount last year, with taxpayers able to claim the rest of the credit after they file their 2021 tax returns. Speidel said if you received money last year, you should look for letters and check your bank statements to make sure you are reporting the amount you received correctly.
“The child tax credit has been a difficult part of this production season, I think, for many taxpayers and tax practitioners. Most people can’t remember the amount of prepayments they received with 100% accuracy,” Speidel said.
She explained that a common source of confusion has been how the IRS has distributed letters to married couples who file jointly.
“People get these identical letters that say, ‘Mrs. Smith got $750, Mr. Smith got $750. And they just assume that when they go to see their tax preparer, they are declaring $750. In reality, it’s $1,500.
What are the new reporting requirements on transactions through apps like Venmo, PayPal, Cash App, and Zelle?
Starting this year, apps must report transactions of $600 or more, a steep drop from the previous reporting threshold of $20,000. Venmo’s FAQ explains that the rule applies to sales of goods and services, but not payments from friends and family. However, you will have to report the winnings next year, during the 2023 tax season, not this year.
The IRS wants to be able to collect this income because it’s easy for people to illegally underreport payments made in cash or through apps, according to Caroline Bruckner, managing director of American University’s Kogod Tax Policy Center, who has discussed in an interview. with Marketplace’s Kristin Schwab.
She again stressed that people should keep their records longer than they think because of the potential issues they might run into with this rule.
“We often have people come to us and we try to help them piece together records to show that they may have been paid $5,000, but they have expenses they can deduct from that money. . For example, if it’s a small business seller,” Speidel said.
She pointed out that sometimes the IRS may incorrectly treat certain transactions as taxable if they were made through these third-party companies.
The IRS is aware of these transactions through 1099-K forms, which platforms like GoFundMe provide after a certain amount of money has been donated or a specific number of people have donated. However, the GoFundMe website explains that “donations made to GoFundMe personal fundraisers are generally considered ‘personal gifts,’ which for the most part are not taxed as income in the United States.”
Speidel said she recently had a client who was audited based on a GoFundMe 1099-K and needed to prove the circumstances of her difficulties.
What other taxes can I owe?
If you received unemployment compensation in 2020, you were allowed to exclude up to $10,200 of it on your tax return last year. However, you cannot exclude this amount for 2021.
You can see other tax changes that may apply to you here.
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