Recently, I been writing about how it will do you good to be on top of tax season early. You likely have now already received some tax documents, so here is to hoping you know where they are instead of burying them somewhere that you will find eventually (hopefully). That is a simple way to help tax season go well, but today, let’s talk about some ways it could go wrong.
The last two tax seasons came with new complications and challenges. They were so challenging that there are a significant number of paper returns from last year still being processed as we sit days away from the start of the 2021 tax season. So this year already promises to have its own challenges, but maybe we can stay out ahead of a couple of them.
Over the pandemic, many people paused their student loan payments. I do not want to cast any aspersions on this plan, for I am sure there are people who were greatly helped by not having to pay that bill during a time of diminished income. When you made those payments, though, it came with a tax deduction for paying the interest. Without that, it’s possible that some people could see a smaller refund than in the past, or possibly even owe some money. Again, getting ahead of things will get you that answer earlier and give you more of a chance to figure out how to handle it.
What could turn out to be even more of a difference for some, though, were the advance payments of the Child Tax Credit. I don’t think it’s right to go in depth on what it is here, but if you were getting money from the government on the 15th of the month for the second half of last year, yeah, it’s that money. And that money isn’t like the three stimulus payments many received during the pandemic, which was essentially free money handed to you. Instead, the Child Tax Credit money consisted of prepayments of a credit that you may have already been receiving on your tax return. Granted, this credit was larger than it was in the past, but there are still many situations when getting some of it ahead of time will affect the amount of a refund, or again, leave a taxpayer owing some money. And yet again, this is where being out ahead of things and having this answer early could be beneficial.
Of course, there are a lot of people who have had little change in their lives over the last couple years and their tax situation will likely not be a big surprise. These interesting times, though, mean there are more people than usual who are going to be surprised, so don’t let that happen to you and make those times even more harrowing.
Connect to Us ~ Facebook ~ Twitter
To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.