There is never a good moment to catch the IRS’s notice, but you especially want to avoid extra scrutiny this year.
The IRS is so underfunded and overburdened that even a minor error can cause your return to be delayed for months. A return that requires “manual processing” — that is, any action by an IRS employee — might be added to a vast backlog that began forming at the start of the epidemic and has yet to be addressed. If something goes wrong, good luck reaching a human.
According to the National Taxpayer Advocate, the IRS answered roughly one out of every ten calls last year, down from around one out of every three before the outbreak.
To prevent tax headaches, the best method is to file your return carefully, thoroughly, and digitally.
Do Not File a Paper Return or Request a Paper Check
Let’s start with the fundamentals: According to April Walker, senior manager for tax practice and ethics at the American Institute of CPAs, you should file online and seek direct payment of any refund you may be entitled to. If your income in 2021 is $73,000 or less, you can use the IRS’ Free File option.
According to CPA Lei Han, associate professor of accounting at Niagara University in Niagara Falls, New York, if you file online, you may begin checking the progress of your return on the IRS website within 24 hours. According to Han, if you file a paper return, tracking will not be available for four weeks.
Paper returns take longer to complete, according to Kent Lugrand, president and CEO of InTouch Credit Union in Plano, Texas. Paper returns are also considerably more likely to contain mistakes, either committed by the taxpayer or introduced by an IRS employee while moving data from a paper return into the agency’s computer system.
Electronic filing, on the other hand, will not allow you to file a return with numerous frequent problems, such as arithmetic errors or omitting to sign your return. You must correct those before submitting the return, according to Lugrand.
Other issues, such as inaccurate Social Security, bank routing, or bank account numbers, may go undetected by e-filing software, therefore Walker advises double-checking all numbers.
Check That the Numbers Match
The IRS’s computerized matching system searches for anomalies between your reported income and papers filed by your employer and banking institutions. A mismatch might result in the agency freezing your return and sending you a letter requesting further information.
Be cautious if you invest outside of a retirement account: Brokerages are renowned for sending out “preliminary” 1099-B forms, which monitor investors’ profits and losses, in order to meet the IRS’s mid-February deadline, and then issuing updated forms a month or so later. If you depend on the preliminary form, you may have to file an updated return, which would have to be manually processed and might cause your refund to be delayed for months.
The W-2 or 1099 paperwork you get may include mistakes. Han advises that if this is the case, you should try to get the error repaired and the form reprinted before filing. Consider seeking an extension if you need additional time to remedy the issue, she advises.
Report Child Tax Credits and Stimulus Payments Correctly
Your return might also be hampered if there is a discrepancy between the child tax credit or stimulus funds you record and what the IRS claims you received last year, according to Walker.
Taxpayers who received monthly child tax credit payments in 2021 must reconcile those payments with the amount for which they were qualified. According to Han, the IRS based the payouts on income data from the previous year, so some families may have gotten too much, while others will qualify for more money when they submit their taxes. Furthermore, eligible taxpayers who did not get the third stimulus payment, or who qualified for more than they received, can claim the recovery rebate credit on their tax return for this year.
The IRS began delivering warnings to people who received payments in 2021 in January: Letter 6475 described the amount of stimulus money received by the taxpayer, whereas Letter 6419 stated total advance child tax credit payments.
Walker explains that if you are married and got the payments, you most likely received two letters concerning the child tax payments – one for each spouse. If you have one kid and get $300 per month for six months, for a total of $1,800, you will normally receive two IRS letters, each reporting $900. “Some people may have thrown away the second letter because they felt it was a duplicate.”
If you don’t have any of these papers, Walker advises not to depend just on your memories or bank records. To get the right data, you can create an account on the IRS website and access IRS records.
“If you simply wing it on that number,” Walker adds, “that’s going to cause a delay.”