By Liz Weston
There may never be a good time to get the attention of the IRS, but this year you really want to avoid more scrutiny.
The IRS is so understaffed and overwhelmed that even a small mistake could delay your refund for months. A return that requires “manual processing” — basically, any action by an IRS employee — could join a massive queue that began to build at the start of the pandemic and has yet to be resolved. If something goes wrong, good luck reaching a human: The IRS answered about 1 in 10 calls last year, up from about 1 in 3 before the pandemic, according to the National Taxpayer Advocate.
To avoid tax hassles, the best approach is to be careful, thorough, and digital when filing your return.
DO NOT FILE A PAPER STATEMENT OR ASK FOR A PAPER CHECK
Let’s start with the basics: file electronically and request direct deposit of any refunds you may be owed, says April Walker, senior tax practice and ethics officer at the American Institute of CPAs.
If your income was $73,000 or less in 2021, you can use the IRS tax preparation option.
If you file electronically, you can start tracking your refund status on the IRS site within 24 hours, says CPA Lei Han, associate professor of accounting at Niagara University in Niagara Falls, New York. . If you file a paper return, tracking usually won’t be available for four weeks, Han says.
Paper returns don’t just take longer to process, notes Kent Lugrand, president and general manager of InTouch Credit Union in Plano, Texas. Paper returns are also much more likely to contain errors – either that a taxpayer made or an IRS employee introduced when transferring 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 many common errors such as math errors or not signing your return. You must fix them before you can submit the return, says Lugrand.
E-filing software may not detect other issues, such as incorrect social security, bank routing, or bank account numbers, so check all numbers carefully, Walker recommends.
MAKE SURE YOUR NUMBERS MATCH
The IRS’ automated matching system looks for discrepancies between the income you report and the forms filed by your employer and financial institutions. A mismatch may cause the agency to freeze your refund and trigger a notice asking for more information.
If you’re investing outside of a retirement account, beware: brokerage firms are known to send “preliminary” 1099-B forms — which track investors’ gains and losses — to meet the IRS’ deadline of mid-February, then send in the corrected forms about a month later. If you rely on the preliminary form, you could end up having to file an amended return, which would have to be processed manually and could delay your refund for months.
Sometimes the W-2 or 1099 forms you receive contain errors. If so, try fixing the error and re-editing the form before filing, Han recommends. Consider filing for an extension if you need more time to resolve the issue, she says.
PROPERLY REPORTING CHILD TAX CREDIT AND STIMULUS PAYMENTS
Your return could also be derailed by a mismatch between the child tax credit or stimulus payments you report and what the IRS says you got last year, Walker says.
Taxpayers who received monthly child tax credit payments in 2021 will need to reconcile those payments with the amount for which they were actually eligible. The IRS based the payments on income data from a previous year, so some families may have received too much money while others will be entitled to extra money when they file their returns. said Han. Additionally, eligible individuals who did not receive the third stimulus payment, or who qualified for more than they received, can claim the recovery rebate credit on that year’s tax return.
In January, the IRS began sending notices to taxpayers who had received payments in 2021: letter 6475 summarized the amount of stimulus money the taxpayer had received, while letter 6419 reported the total child tax credit advance payments.
If you’re married and received the payments, you likely received two letters regarding child tax payments — one for each spouse, Walker says. If your family has one child and received $300 per month for six months for a total of $1,800, for example, you will typically receive two letters from the IRS, each reporting $900.
“Some people thought the second letter was a duplicate, so they may have thrown it away,” says Walker.
If you’re missing any of these documents, don’t rely solely on your memory or your bank statements, Walker says. You can create an account on the IRS site and check IRS records to find the correct numbers.
“If you just fly it on that number, it’s probably going to cause a delay,” says Walker.