If you're like most Americans, receiving your tax refund is important—maybe even critically important—to your financial well-being.
Internal Revenue Service (IRS) statistics indicate that the average federal tax refund was roughly $2,549 in 2020, but any number of taxpayer mistakes can delay that refund for an extended period of time—perhaps even permanently.
Some mistakes can mean you'll end up owing the IRS money.
Taking your time with your 1040 tax return and knowing what you should look out for when filing it can help you avoid delays and penalties. Here are some tips and details to consider as you file your taxes.
Plan Ahead for Paying IRS Debt
If you owe the IRS money, you should settle that debt as soon as possible. The penalty for failing to pay any taxes you might owe is 0.5% per month of the amount of your tax debt.
If you can't simply pay your entire tax bill by the filing deadline, then you have a couple of options. You should pay as much as you can when you file your return, to minimize any penalties you incur. Once you've paid as much as you can upfront, consider these strategies:
- Pay your taxes with a credit card or by taking a personal loan. The overall interest rate could be less than the penalties and interest you'd pay the IRS.
- Ask the IRS for an installment agreement, a monthly payment plan you establish with the IRS. You can set up an IRS payment plan to reduce the financial consequences if you don't think you can pay off your balance within a few months.
In 2021, you have until June 15 to file and pay your 2020 taxes if you live in Texas, Louisiana, or Oklahoma. This is a one-time extension provided by the IRS in response to the 2021 winter storms. Taxpayers in other locations have until May 17, 2021, to file their 2020 tax returns and make any payments owed.
No matter your strategy or when you plan to file, you should prepare a rough draft of your tax return as soon as possible. This will provide you with an idea of how much you owe.
Even if you file for an extension until October, this applies only to filing the return and doesn't delay your payment due date.
Double-Check Your Math
If you're preparing your tax return yourself, check your math and your other tax return information as well, such as Social Security numbers.
Entering erroneous information will delay your refund until the IRS straightens the situation out and determines how much of a refund you have coming to you—or how much you'll owe.
The same goes for claiming tax deductions or credits that you don't actually qualify for, even though you might think you do. It's usually a good idea to check with a professional before you claim them, just to be sure, if you're preparing your return yourself.
You can spare yourself a great deal of aggravation by purchasing tax preparation software.
Most of these programs will walk you through your tax situation step-by-step—breaking down each scenario into simple questions. Enter your information and answers into the program, and the software will prepare your return and e-file it for you.
Ask for Help
You must fill out the "Third Party Designee" section on your tax return if you enlist someone's help to prepare your tax return and want that individual to discuss your tax return with the IRS on your behalf.
Once you do this, your tax professional can talk with the IRS about any questions or concerns the agency might have about your return.
Third-party designations expire one year from the due date of your tax return, so if you want to use the same person's help next year, you'll have to fill out a new "Third Party Designee" form.
If the person who helped you with your return was a tax professional, and you paid them, they must fill out the section of your return that asks for their identifying information. They must also sign and date your return and provide their Social Security or Taxpayer ID number.
Friends, relatives, and volunteers don't have to complete this section or provide this information as long as you don't pay them to help you.
Be Sure to Sign Everything
Surprisingly enough, a lot of people forget to sign their tax returns, and this is imperative. You're required to sign your return, because your signature indicates that you're effectively declaring, under penalty of perjury, that the information contained in it is true and accurate.
You can't cross out the perjury statement just above the signature line. If you refuse to sign, or otherwise tamper with the perjury statement, your tax return will not be processed.
You must also enter a date on your tax return. It should be the day you actually sign it. Telling the IRS your occupation and telephone number is optional, however.
Staple Your Tax Return Properly
Staple one copy of each of your W-2 statements to the front of your tax return if you're mailing in a paper copy. If you must file other schedules and statements with your return, sort them from lowest to highest by using the attachment sequence number. You can find this number in the upper-right corner of the form.
Staple everything together, and mail it to the correct IRS Service Center. The service center will depend on a variety of factors, such as your state of residence and whether you're also submitting a payment.
The IRS has a list of its mailing addresses on its website.
Of course, you can skip all this if you e-file your return instead, as 152.8 million taxpayers did by December 2020 for the 2019 tax season. The IRS also provides a list of e-filing options online.
Increase Your Tax Withholding
Consider increasing your income tax withholding if it turns out that you owe the IRS money when you complete your return. This won't fix your situation for the current year, but it can help you avoid having the same problem next year.
To increase your withholding, fill out a new Form W-4, and give it to your employer. If you're self-employed, you can increase your quarterly estimated tax payments.
Some Tax Credits Will Delay Your Refund
Even if you do everything right, your refund could be slightly delayed if you claim the earned income tax credit or the additional child tax credit.
The Protecting Americans from Tax Hikes (PATH) Act prohibits the IRS from issuing these refunds before mid-February. If you file your taxes before then, your return will likely be delayed.
The idea is to give the IRS time to ensure that all claims for these refundable tax credits are legitimate—another good reason to double-check and ensure that you qualify.
In 2021, the American Rescue Plan temporarily expanded eligibility for the Earned Income Tax Credit in response to the COVID-19 pandemic. This includes more childless households, as well as taxpayers under age 25 and over age 65. You may find that you qualify for the EITC in 2021, even if you didn't in previous years. The ARP also increased the benefit that most households will receive from the Child Tax Credit, particularly low-income households.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to them. For current tax or legal advice, please consult with an accountant or an attorney.