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It’s Tax Season – Don’t Panic!

Candace Varner

Ben Hake

In their latest information-packed episode, Tax Directors Candace Varner and Ben Hake prepare you for filing your 2021 tax returns. They cover important documents you’ll need and when you can expect to receive them, along with a few ways you may be able to reduce your tax bill before the filing deadline.

Lastly, if you’ll be waiting on a K-1 (or tend to be a slacker), they explain what you’ll need to know about filing an extension.

Read more about tax documents and deadlines:

Make some new year’s tax resolutions:

The Standard Deduction podcast is hosted by Tax Directors Candace Varner and Ben Hake. This podcast is a thoughtful, informed discussion about ideas, trends and developments in taxes related to personal wealth management.

Our mission is to educate and inspire people to make better financial choices through knowledge, tools and strategies. We believe that education and planning are key components of financial success. Come explore relevant financial topics with our team.

Have questions or topic suggestions?  Email us @ [email protected]


Ben Hake: Hello and welcome to The Standard Deduction. I’m Ben Hake.

Candace Varner: And I’m Candace Varner. Ben, it’s a new year. Are you excited?

Ben: Oh, super excited. It’s the best time of the year.

Candace: Because its tax season?

Ben: No. It’s time to make resolutions, things of that nature.

Candace: Did you make a new year’s resolution this year?

Ben: I’m not sure I’ve made a resolution since my Model U.N. days in middle school, but it’s always the opportunity to make one.

Candace: Wow. I am going to let that one lie just as it is and let you stand on your own with that. Instead, I’m going to turn back to tax season because new year’s means tax season to all tax accountants. And some of you might be begrudgingly starting to think about your tax returns, but we’ve been planning for it for a while. And now it’s time to start the show. We’re going to start getting some mail, probably now, and we’re going to keep getting tax mail, or emails more likely, throughout the next couple of months. So, let’s start with what’s coming right now in the mail. Ben, hit me.

Ben: Yes. So for the last, probably 24 months, the IRS has been sending out more money unrelated to tax refunds than they ever have in the past. And so as an effort to make sure… They probably assume not every taxpayer’s tracking this. So they’re sending quite a bit of information that’s just the summary of what you’ve received during the year. So one of the ones that I would guess almost all of our listeners will have received is the advanced Child Tax Credit letter. So, back in July, the IRS started basically sending early payments of that. And that’s one of the new credits where you get it and there is the need to reconcile it on the return. So if you made too much, you have to return it. And if you made too little, you could possibly get more.

So that letter… There’s one sent out to each taxpayer on the return. So if you’re a married couple, you’ll actually receive two forms, each of them reporting the amount you received. And, hopefully not a surprise, the number of children the IRS thinks you have. So, hopefully that number is accurate.

The other letter that a lot of clients were actually getting earlier in the year, so last fall, was going to be the third-round stimulus letter, letting them know how much they received, and it might have been anywhere from April through the end of the summer that they received that. Again, that’s something that each taxpayer is going to report on their return so that if they… Unlike the Child Tax Credit, you don’t have to repay that. But if you got too little, and your income on your ‘21 return is less, then you’ll actually get a larger credit there.

The final item is going to be an ID PIN letter. So if you’ve ever had a identity theft issue, a lot of the times people will sign up with the IRS, that way they are… There’s no risk of them losing any information. And so each year, the IRS will send you a brand new PIN letter. And of all the things that the IRS sends you, this is the worst thing to lose. Because obviously it’s sent to you to protect your identity, so getting a replacement copy is extremely difficult and time consuming. It’s not something your CPA could do for you, unfortunately. And a lot of the times evolves confirming odd and old financial information from old mortgages, things of that nature that might be hard for a random person to track down. So if you get one of those, always… Recommendation is to scan it or get a copy to your CPA and then put it in a file where you know you won’t throw it away.

But outside of what the IRS is sending you, what else could taxpayers do, Candace?

Candace: So, for right now, a lot of it’s going to be a waiting game. Because we’re waiting for K-1s, 1099s, all those other things that are going to come usually closer to February. But in the meantime, you can go ahead and start organizing all of your information that does not come on a government form. So this is going to be largely deductions, but everything else that you were hopefully keeping track of during the year, and if not, now going to take the fun time to go back through everything you did in 2021.

So the first one, and biggest one, I get asked about is charitable donations. Most charities, I think send letters as you make the donations. If you’re consistently donating, a lot of times they’ll send you a summary in January of everything you gave last year, so keep that. Even if you’re not itemizing your deductions, you can deduct up to $300 in charitable donations per person per taxpayer. So if you’re married, $600. So keep track of those, even if you think you don’t have any intention of itemizing your deductions.

Real estate taxes is another one where if you just have to go dig out the receipt, any estimated tax payments that you made during the year… Sometimes people forget how much they paid and when, so getting those dates and amounts. Childcare receipts — so a lot of daycare centers will automatically send those out in January. But if not, especially if you’ve maybe used an in-home service, get those totals for the year. 529 contributions — go back and look at everything you did.

Some other ones that are newer would be any crypto transactions, cryptocurrency. If you are someone who has purchased, sold, received, done anything with cryptocurrency, you’re going to want to spend some time making sure you have good records as to how much was the value when you got it, if you bought it, if you sold it. And not only the numerical amounts so that you can put on any gains that you had from purchase or sale, but there’s a question on the 1040 form that’s just asking you, “Did you own any cryptocurrency? Did you have any transactions with it during the year?” And you’re going to have to answer that, yes or no. So even if all you did was maybe buy some and hold it, you will still need to have that on the tax form.

Another one would be foreign account disclosures. Start gathering for that. If you own any accounts or have signature authority of any accounts outside of the United States, you need to file a separate form that includes the bank name, the highest value during the year and the address of the bank, the bank account number. I should clarify — those are only accounts, if you have more than $10,000 in those accounts. So that’s other stuff you can gather now.

And then the big one is going to be business expenses and rental expenses. So if you are self-employed and you need to figure out how much money you made last year, you’re going to want to add up all of your expenses. For those, I usually recommend people start with what you put on the tax return last year. Because that’s going to be a good jumping off point for all of the things you need to go seek out. So if by chance you don’t have very diligent records kept in an accounting software, and instead, you’re just combing through your bank statements, look for items that you deducted last year and start with those before moving on to other things that might also be deductible this year. So that would be for self-employed business individuals and any rental properties is usually another one where I see that a lot.

Ben: To jump off of that, for the people who are self-employed or have rental properties, another thing to double check while we’re in January would be, do you need to issue any 1099s to contractors? So generally speaking that wouldn’t be if you bought up material, but would be if you were provided a service. So landscaping companies, contractors, things of that nature. And the IRS requires those to be sent out by the end of the month, so now’s a good time to tally those up. If the person was paid less than $600, there’s no obligation to send a 1099, but that’s, again, something that’s easy to do now, and it’s easy to forget because it isn’t directly reported on a tax return.

But once we get through January, that gets us to when a lot of the tax forms will start to get received by you. So the first ones most people receive are going to be their 1099-INTs that report any bank interest they earned. A lot of the banks, if it’s less than $10, won’t send anything. So, given where interest rates appear to be right now, not too shocking if you’re under that threshold.

The next big item is going to be the consolidated 1099s from your brokerage statements. So reporting dividends, interest and any capital gains you might have. It’s pretty common for the brokerage houses to send those out the second week of February, around the 15th. And then to send a second or a corrected version of that, relatively quickly thereafter, so maybe a week or two. And the reason for that wasn’t that they made a mistake, but that a lot of the times they were given updated information that would change, maybe originally was shown as an ordinary dividend and now shown as a non-dividend distribution. So those can actually be issued all the way up until October, but generally speaking, a lot of the custodians try and make those first passes at making updates within a week or two of them originally being issued. And then if the changes are relatively minor, just a few cents, they won’t send anything else out.

Candace: So for the corrected ones, the question I always get is what do I do if I get a corrected one later? So in general, knowing that that is not unlikely, given when the custodians get information, I always recommend that we look at the original 1099, go ahead and prepare the return, but do not submit it yet. Wait to file your return until you believe no more corrections are coming or at least, I would say end of February, if you are someone who has substantial income numbers on those consolidated 1099s.

The other form that we are always waiting on, my personal favorite, the K-1. This is going to come to you if you are an owner in an S corporation or a partnership. And the K-1 shows the amount of income flowing through to your personal return from that partnership or S corporation return.

Now these K-1s do not follow the normal due dates of, say, when they have to get out your 1099s. So these could come a lot later. They often cause people to have to extend their tax returns. So the K-1 comes from, let’s say a partnership return. You won’t get the K-1 until the partnership’s tax return is complete. So they have to do that business tax return first, and only when that’s done, will they issue you the K-1. So more likely than not, you’re not going to see this until March, maybe later. And for the larger really complex returns, they are often done over the summer or at their extended deadline in September. And you might not get the K-1 until even after September 15th. Hopefully those funds are giving you estimated information, because you’re going to need that if you need to extend your tax return. But the K-1s, usually you’re going to start seeing trickle in, in February, but they do not follow the normal deadlines due at February 15th, which often confuses people.

So, let’s say I get my K-1, I do all my tax return and it turns out I owe a lot more to the IRS than I thought I did. Ben, what can I do now?

Ben: Have a quick panic attack.

Candace: No, no, no. Don’t recommend that.

Ben: That’s not the only answer I’m going to provide.

Candace: Oh, okay.

Ben: There’s… Again, you can’t go back and change the past. So we can’t do more charitable deductions, we can’t more estimated payments. But the IRS does have a few things that you could do after the end of the calendar year, but that would be reported on that calendar year 1040. So the two big ones most people are familiar with is you have the opportunity to make an IRA contribution. So that would be a contribution to a retirement account that you can possibly deduct, subject to a few other rules. If you have a high deductible health insurance plan through your employer, or if you’re self-employed, you have the opportunity to make an HSA contribution (or Health Savings Account contribution). And both of those you have until the deadline of the tax filing, so April 15th.

If you’re self-employed, you’ve got a few more options. You can have a SEP-IRA or a solo 401(k). And those, the deadline to fund is actually the extended deadline. So that’s something where you actually have until September 15th or October 15th to fund. And those could be pretty large dollar amounts that could be used to drive down a balance due. So, there’s not a ton of options, but they’re definitely available. For non-self-employed people, almost all of them needed to be acted on prior to April 15th. So just a deadline to be aware of.

Candace: Yes. And this is one of the reasons that in our previous episodes, or other times, we stress year-end tax planning, or maybe now is a good time to plan for 2022 taxes, too, while we’re talking about it. But there’s a lot of things you can do, but not a lot of them you can do after the year has ended. So it’s a good idea to plan ahead of time.

So, if we have all that information and, let’s say you don’t take our advice and get all this information together in January, and instead you are someone who likes to do this at the very last minute, you might need to extend your tax return on the April 15th deadline. An extension is an extension of time to file your return. So you get more time to fill out the forms. It is not an extension of time to pay the taxes that you owe.

So even if you decide to file an extension, if you owe the IRS money, you need to send in an estimate of what you think you owe them on the April 15th deadline in order to avoid penalties and interest accruing. So the extension is just actually like a voucher. It’s a really short form that just says, “Here’s how much I think I owe, I need more time to file.” And you send them the money and that form.

You need to be careful about checking which states need forms as well. Some states will accept the federal extension form, some states require that you file a separate one with them, but same situation applies where it’s not an extension of time to pay. So if you owe money and you need to do a rough calculation to see if you owe them money, you need to send that at April 15th and not wait until October.

What else do we need to do before April 15th, Ben?

Ben: Generally, one thing I piggyback off on, on the extension, is that it’s automatically granted assuming you ask for it, but it’s not automatically given. So even if you don’t know how much you’re going to owe for extension purposes, it’s still important to submit it prior to the April 15th or whatever the deadline is because at the very least you’ll avoid the late payment penalty on that piece. Or if you think you don’t owe anything at all, it’s still a good thing to submit the actual extension.

The other thing that tends to be due around April 15th, which coincides with owing more taxes, would be first quarter estimates for the calendar year. So for a lot of our clients, if they owe taxes for the prior year, so for 2021, they’ll be paying those, as well as looking forward and starting to make those estimated payments. Those coinciding on the same day can hopefully not create a cash crunch, but just another timing issue to be aware of.

Candace: Excellent. And as always, I almost hate that it’s a joke on this podcast now, that all of this is subject to change because the last two years, the IRS has, of course, moved the tax filing and payment deadline out from April 15th — first to July, and then last year to May. And I can tell you that everyone here at Creative Planning Tax would really like it to not move. We would really like to keep the April 15th deadline. And I think a lot of taxpayers would, as well, just to avoid confusion.

So, I’m really hoping for that but, as always, stay tuned and we’ll keep you updated with any due date changes or other tax law changes.

Thank you.

Disclosure: This commentary is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed.

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