This filing season, the IRS is finding that taxpayers have been making a number of common errors, including claiming incorrect amounts of the recovery rebate credit and child tax credit.
To avoid making mistakes when claiming these common credits, preparers should take some key steps. First, remind your clients to bring you Letter 6419 for advance child tax credit payments and Letter 6475 for third economic impact payment amounts they received. Clients can also provide the information by accessing their online account for you. Claiming incorrect tax credit amounts on a return can delay a taxpayer’s refund and lead to adjustments to the amount refunded.
If the idea of waiting for clients to provide you with these items is daunting, there are programs available to request IRS transcript data. NATP’s partner, Tax Help Software, is an IRS transcript tool that allows users to request, download and analyze IRS transcript data. NATP members can receive a special rate of $250 for six months.
Taking the following steps can help preparers avoid common mistakes through the duration of tax season:
File electronically. Enter information carefully, including any information needed to calculate credits and deductions. Let clients know that if they want to file a paper return, it may take months for the IRS to process their return.
Use the correct filing status. Tax planning conversations with your clients can help you determine their most appropriate and beneficial filing status, especially when considering married filing separately or married filing jointly and taking the child tax credit.
Answer the virtual currency question. The 2021 Forms 1040 and 1040-SR ask whether at any time during 2021, a person received, sold, exchanged or otherwise disposed of any financial interest in any virtual currency. This field cannot be left blank.
Report all taxable income. Carefully check your clients’ records to help avoid errors that lead to processing delays and potentially find overlooked deductions or credits. Taxpayers should have all their income documents on hand before starting their tax return.
Include unemployment compensation. Although a special law allowed taxpayers to exclude unemployment compensation from their taxable income for 2020, it was only for that year. Unemployment compensation received in 2021 is generally taxable and should be included on your clients’ returns.
Double-check name, birth date and Social Security number entries. A return must correctly list the name, Social Security number (SSN) and date of birth for each person claimed as a dependent on an individual income tax return. Enter each SSN and individual’s name on a tax return exactly as printed on the Social Security card. If a dependent or spouse does not have and is not eligible to get an SSN, list the Individual Tax Identification Number (ITIN) instead of an SSN.
Double-check routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows your client access to their money faster.
Mail paper returns to the right address. Paper filers should confirm the correct address for where to file on IRS.gov or on form instructions to avoid processing delays. Note that processing paper tax returns could take much longer than usual. Tax professionals should encourage clients to file electronically if possible (see item one).
Ensure your clients sign and date the return. If filing a joint return, both spouses must sign and date the return.
Request an extension, if needed. If your clients cannot meet the April 18 deadline, you can, on their behalf, request a six-month filing extension to Oct. 17 and prevent late filing penalties. Keep in mind that, while an extension grants additional time to file, tax payments are still due April 18 for most taxpayers.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.