DON’T BE IN SUCH A HURRY – BUT DON’T WAIT TILL THE LAST MINUTE

 

According to the IRS today, January 24^th, is the first day the tax agency will begin accepting and processing 2021 tax year returns.

But don’t be in such a hurry to file.  You should not rush to be among the first taxpayers of the year to have your taxes prepared.   Do not give or send your tax preparer your ‘stuff’, or attempt to prepare your own returns, until you have received ALL the forms and information needed to complete the returns! That means every W-2, every 1099, and every K-1 and all the cost basis information on the sale of investments.

During my 50 years in “the business” I have had many experiences where a client came in very early in the season and had his/her return prepared, only to receive another Form 1099 in the mail the day after he/she had sent the finished returns off to his/her “uncles”.

Be aware that if you have a brokerage account there is an excellent chance that you will receive at least one, if not two, corrected “Consolidated 1099 Statements” to report taxable dividends, interest and gross proceeds after the initial statement arrives in late January.  The final corrected 1099 may not arrive until mid-March.

However don’t wait until the last minute.

Many taxpayers who expect to owe their “uncles” wait until the very last minute to get their “stuff” together to prepare their return.  Even if you think you will owe taxes you should have the return prepared early, once you have all the necessary information in hand.  You don’t have to actually file the returns and pay any tax until April 18th.  But by having your 1040 prepared early you will know exactly how much you will owe and have over a month to come up with the money, instead of running around trying to juggle funds days before the deadline. Hey, you might even be surprised to find that you will be getting a refund!

Also consider the workload of your tax preparer.  I had a strict long-standing rule that all returns that are not literally in my hands, with all the necessary information, by a specific date in March will be automatically extended!

There are some tax-related things you should do as early.  Make your 2022 contribution to your traditional or ROTH IRA, and Coverdell Education Savings Account, Section 529 College Savings Plan, or Health Savings Account as early as possible in the year.  Thanks to the miracle of tax-free compounding, by making your contribution on the first available day of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.

If you make a 2022 ROTH contribution now and later discover that you are not eligible for a ROTH, or, for whatever reason, decide you would rather have the funds in a traditional IRA, you have until the due date of your return to "recharacterize" the contribution.

When making your contribution to a tax-deferred account be sure to identify the year for which it is being made.  Write, for example, “2022 IRA contribution” clearly in the memo section of the check.  If you enclose a payment voucher or coupon provided by the trustee make sure the correct year is marked.  Follow up by checking the next statement for the account to verify the contribution was applied to the correct year.

TTFN