It’s doubtful Benjamin Franklin knew he was forever linking the IRS to the U.S. Constitution when he said, in a letter to Jean-Baptiste Le Roy in 1789, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
It’s now only two or so days until April 18, this year’s date to file taxes, instead of the usual April 15, which is now obviously past us. The extra two days are because of Emancipation Day, which marks the end of slavery in Washington, D.C. The event was observed on April 15 this year (it is usually April 16) and since the 18th is the next business day, that became the new due date. (And if you live in Maine and Massachusetts, you get an extra day because Patriots’ Day is April 18.)
As a CPA, Rob Cordasco knows taxes. Cordasco is the owner of Cordasco & Company, a certified public accounting firm, and the author of “A Framework for Growth: Smart Financial and Tax Planning Strategies Throughout the Entrepreneurial Life Cycle.” He spoke with Benzinga about what to look for this tax season.
“Seems like for us, clients get what the basics are, and they build their knowledge over time,” said Cordasco.
And, “each year most clients are dealing with what’s new,” Cordasco said about when the issues begin.
He noted that the 2021 tax year is different because the U.S. Congress didn’t pass any tax-specific legislature, as it usually does.
“Notoriously, Congress passes late December tax bills,” he said, and then CPAs are “trying to understand the changes and explain them to people for the next four months.”
Cordasco says there are still “a couple of big themes where the nature of the questions will be.”
4 Things To Look For This Tax Season:
• Cryptocurrency was a hot topic for the past year, and you’re going to have to claim it on your taxes.
“It has been a virtual gold rush, where everyone was getting in and out, figuring out how digital assets work. Markets became more vibrant … and there are lots of questions,” said Cordasco.
While Cordasco said that with crypto — digital assets, nontangible assets — the rules may not be clear, the IRS will blame you if it’s claimed incorrectly.
All of that is taxable, and Cordasco recommends making sure to disclose any crypto-related purchases or sales properly for 2021.
• The Child Tax Credit has been confusing people with how to claim it, said Cordasco.
The tax credit was expanded as part of the COVID-19 stimulus recovery as the American Rescue Plan in March 2021.
According to the White House, this is what happened: “The American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (head of household).”
The government started sending money, generally direct deposited in a banking account, starting in July 2021.
The problem with filing is if the number of children changed during that time, as well as income level. Those need to be altered and changed.
Cordasco said that the program was new and poorly administered, hence causing the confusion.
• File and Pay Electronically: Like to file your taxes via paper form, writing a check for taxes owed and mailing it to the IRS via the U.S. Post Office?
It’s time to enter the digital age.
“The pandemic forced us to realize that the IRS isn’t doing great and people should not mail taxes,” he said, emphasizing, “It’s not a great way to submit payments.”
If you expected money back in 2020 and 2021, the IRS more than likely messed up payments if you were receiving a refund via a paper check. Then there was the spotty service from the U.S. Post Office, which added to delays.
But, if sending taxes by mail is a tradition, make sure that there is proof it was sent, with certified mail as the best option.
• Yes, You Can Get An Extension, But … If you haven’t filed by now — or can’t even do it by April 18, midnight, you might just go ahead and do what is called a safety extension, and of course, file it by April 18.
What happens if you don’t file an extension? Late filing penalties are 5% of a month of unpaid tax, up to 25% of unpaid taxes. If you extend to October — and you miss it again — it is the same penalty.
Remember, an extension isn’t an extension to pay taxes — it is just for filing. Any tax that isn’t sent in on Monday, a taxpayer will also get an additional 1.5 % penalty per month until it is paid. States are different and often have a higher rate of penalty. Note that most states have different deadlines for filing extensions — so check out those separately.
Cordasco says things that don’t extend past Monday are contributions for 2021 IRAs and HSAs.
Ok, so let’s say you know you are getting money back and can’t file by the IRS deadline? “No penalty, no foul if you don’t’ need it,” said Cordasco. “Penalties only apply when you owe them money.”
But why wait? With that tax refund, a possible summer trip awaits.