Here’s how to get a jump-start on the upcoming tax season

2 min

94 shares, 155 points

After last year’s pandemic-related restrictions, many Americans are ready to embrace the holidays. But people should also invest a little time to get a jump-start on the upcoming tax season.

There are still opportunities to lower tax bills, such as 401(k) contributions, tax-loss harvesting, charitable giving or Roth individual retirement account conversions.

However, filers should also take steps to prevent headaches amid the recent flurry of tax law changes, according to advisors from CNBC’s 2021 FA 100 list.

More from FA 100:
How to maximize year-end tax planning after a layoff or early retirement
Financial advisors struggle with putting their clients into cryptocurrencies
How to pick the best year-end charitable giving strategy

To begin, filers may explore their Online Account with the IRS to see tax balances, payments, copies of select notices and more.

Some taxpayers may opt for an Identity Protection PIN to prevent someone from filing a fraudulent return by Social Security number or Individual Taxpayer Identification Number.

“It’s another way of protecting yourself from identity theft,” said John Dahlin, director of tax at IFA Taxes, a division of Index Fund Advisors in Irvine, California, ranked No. 72 on the FA 100 list.

Tax withholdings

Many taxpayers worry about getting a bill when they file their returns. But someone expecting to owe may still adjust their paycheck withholding or make extra payments.

And retirees worried about surprise levies may withhold part of this year’s required minimum distribution, said Dahlin.

Health insurance subsidies

More filers have signed up for free or low-cost coverage in 2021 through the Marketplace with expanded health insurance subsidies.

However, with income limits, someone may have to repay these tax credits if they earned more than expected, Dahlin said.

It’s much better not to be surprised when all of a sudden it’s due.

John Dahlin

Director of tax at IFA Taxes

Higher earners may estimate income now to see if they have exceeded the thresholds. And if they have to pay it back, they may save money through April to ease the sting. 

“It’s much better not to be surprised when all of a sudden it’s due,” Dahlin said.

Child tax credits

Last year’s stimulus checks triggered millions of delays and error notices as the IRS struggled to reconcile payments, and many taxpayers still await resolution.

The IRS had a backlog of 5.9 million unprocessed individual returns as of Nov. 12, including 2020 returns with errors or requiring corrections due to stimulus payments, according to the agency.

And many tax professionals foresee the same issues, including possible refund delays, for child tax credit recipients.

However, filers may avoid flags by keeping pristine records of advance payments, including those listed in the Child Tax Credit Update Portal.

“It’s important to save some sort of record,” Dahlin said. “Whether it’s banking activity, a copy of the checks or letters.”

Recipients should receive Letter 6419 in January, summarizing 2021 payments, according to the IRS.

Estate planning

While high-net-worth families also consider the upcoming tax season, their advisors often use a multiple-year approach, such as gifts to family or charity through trusts, which they may consider finalizing in 2021, depending on the clients’ goals.

“We’ve been talking to families for a long time,” said Dave Jones, director of estate strategy at Bailard in Foster City, California, which ranked 97th on the FA 100 list.

However, there are often yearly decisions, such as handling income from the sale of a business or other liquidity events. 

“There’s a big wealth transfer component for families right now,” Jones said, explaining how some clients may leverage the higher inflation-adjusted estate tax exemption in 2022 to transfer additional funds.

Source: CNBC

Like it? Share with your friends!

94 shares, 155 points

What's Your Reaction?

Cute Cute
Fun Fun
Hate Hate
Confused Confused
Fail Fail
Geeky Geeky
Love Love
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Voting to make decisions or determine opinions
Formatted Text with Embeds and Visuals
The Classic Internet Listicles
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Upload your own images to make custom memes
Youtube, Vimeo or Vine Embeds
Soundcloud or Mixcloud Embeds
Photo or GIF
GIF format