It is the perfect time for a midyear tax checkup.
As Covid-19 restrictions lift and summer kicks off, it may be tempting to get distracted by vacations, travel, barbecues and camping. But it is also the perfect opportunity for a midyear tax check, leaving time for necessary adjustments.
A tax checkup shows if you are on track and may uncover ways to save over the next six months.
With recent law changes and potentially more on the way, there are new things to monitor as the year progresses.
Here is what to include in a midyear tax review for 2021.
It is essential to review paycheck withholdings throughout the year and make necessary changes. The IRS W-4 Form is confusing and a year-to-date check is imperative if withholding of federal taxes is an issue.
As time passes, life changes may affect how much someone needs to withhold every pay period.
For example, getting married, having a child, and income and career changes may impact health insurance premiums, health savings accounts, retirement accounts and more.
The IRS tax withholding estimator allows filers to double-check the levies taken from their paychecks, cutting the risk of underpaying or overpaying taxes throughout the year, she added.
Moreover, those eligible for the 2021 increased dependent care flexible spending account limit of $10,500 may review how much they want to defer and spend through the rest of the year.
The middle of the year is an excellent time to review retirement plan contributions, such as 401(k) and individual retirement accounts.
Retirement contributors may even consider depositing more with after-tax 401(k) contributions if their plan allows it.
While filers have until the tax deadline next year for IRA or health savings account contributions, they will not have the same opportunity for their 401(k) after the year ends.
Child tax credit
Millions of families will start receiving monthly payments for the enhanced child tax credit. The 2021 change boosts the credit to $3,000 from $2,000 per child under 17, with an extra $600 for children under age 6 The American Recovery Plan Act A, for tax year 2021 only, increased the child tax credit amount to up to $3,000 for each qualifying child between ages 6 and 17 at the end of the 2021 tax year, and $3,600 for each qualifying child under age 6 at the end of the 2021 tax year.
However, those expecting a tax bill may prefer to opt-out of the payments and receive a lump sum next April, assuming they still qualify. There is also the risk of losing eligibility if someone earns more through the rest of the year.
Although the deadline to decline the first payment already passed, there’s still a chance to unenroll from the others through the Child Tax Credit Update Portal.
Taxes on unemployment income
Those receiving unemployment income may also benefit from a midyear audit. While the default federal tax withholding is 10%, recipients may set aside more with quarterly estimated payments or deductions from a future job. You may read more about how and when to make estimated tax payments in IRS Publication 505, see link below.
IRS Websites to Check Status of Both Non-amended and Amended Returns
Tax Season Refund Frequently Asked Questions (6/22/2021)
The IRS has updated a series of FAQs regarding the status of non-amended and amended returns. To check on the status of a non-amended return, taxpayers should go to Where’s My Refund?. To check the status of an amended return, taxpayers should go to Where’s My Amended Return?
The FAQs say that taxpayers should use these websites rather than calling the IRS.
Info regarding non-amended returns. A taxpayer can check the status of an unamended return within 24 hours after the IRS has received the taxpayer’s e-file return or four weeks after the taxpayer has mailed a paper return.
The Where’s My Refund? webpage will tell a taxpayer when the taxpayer’s return has been received and if the refund is in approved or sent status.
The webpage only displays the refund status of a taxpayer’s “most recently filed tax return within the past two tax years.”
Checkmark Observation. The above quoted language presumably means something to the effect of “the most recently filed tax return but only if that return was for the previous tax year or the year before that year.”
The FAQs notes that while the IRS generally issues refunds in less than 21 calendar days, due to COVID-19, it is taking longer to issue refunds regarding the 2020 tax year.
Amended returns. The FAQs say that the Where’s My Refund? webpage will not give you information about amended tax returns. Instead, Where’s My Amended Return? can give you the status of your amended return.
IRS Ended Filing Season with 35M Unprocessed Tax Returns
IRS ended this year’s filing season with more than 35 million individual and business tax returns that have not yet been processed, according to National Taxpayer Advocate Midyear Report to Congress. While most taxpayers were able to successfully file their returns and receive refunds, a record high number of Americans did not, with unprocessed tax returns more than four times greater than the number recorded at the end of the 2019 pre-pandemic filing season.
Have you have received an IRS letter, notice of proposed changes, notice of tax action or any other notice from the IRS and you have not been able to resolve your tax matter through contacting the IRS directly. Our office is here to help.
Dealing with the IRS can be frustrating and stressful, especially this year due to the delays in processing information provided to the IRS. We provide fee-based IRS tax resolution services through expanded representation rights using a Form 2848 Power of Attorney. This service allows us to represent taxpayers in front of the IRS and speak to them on your behalf. IRS tax resolution services are a separate fee from your annual tax preparation and start at $150.00 per hour.
While next year’s tax season is several months away, it is never too early to start getting organized. Start tracking your deductions and keep copies of your receipts/mileage logs. We will be sending out new 2021 tax organizers in November/December of this year.
As always, we are here for you, watching the tax laws and how you may be affected. We offer tax planning as a fee-based service separate from your annual tax preparation. These tax plans start at $250.00. If you would like to schedule a mid-year tax planning review, please feel free to contact our office at 941-708-5300 to make an appointment.
Tarah Van Fossen, MSA EA
A Tax Shelter, Inc