Editor’s note: Quorum is not affiliated with any of the companies mentioned in this article and derives no benefit from these businesses for placement in this article.
There aren’t many annual rituals that people dread more than doing their taxes. Even for those who typically get a refund, there’s still the business of preparing and filing your federal and state returns, which takes time and effort that few of us have to spare. That’s why we’ve put together this month-by-month guide to help reduce your stress and keep you on track for the 2022 tax season.
You can knock out several preparatory tasks in the first few weeks of January, even though the IRS doesn’t typically start accepting returns until later in the month or occasionally even in February, as was the case for 2020 returns.
- Gather your receipts: Whether you typically itemize your deductions or not, it’s a good idea to pull together all relevant receipts, such as healthcare bills you paid out-of-pocket, donations given to charities and energy-saving purchases you made.
- Create a tax file: It can be paper-based or electronic, but designate a place to store all of your tax documents until you’re ready to prepare your return.
- Note your changes: If you made big life changes, such as getting married or divorced, having a child or adopting one, this will affect your tax return. The same goes for big financial changes, such as buying or selling a house, refinancing your mortgage, buying and selling stocks or starting, selling or closing a business.
- Decide how you’ll prepare your taxes: If you meet the IRS income limit, which was $72,000 for 2020 returns, you can use the IRS Free File to electronically prepare and file your return for free. Other options include hiring a tax professional, in which case you should go ahead and make an appointment, or you can opt to use a tax software, such as H&R Block, TaxAct, TaxSlayer or TurboTax.
- Watch for tax documents: Even though January 31 is the deadline for companies to send out W2s and 1099s, some send them earlier. Check your mailbox or email inbox throughout the month in order to put these documents in the 2021 tax return file you created. There’s one other document to look for: If you received Child Tax Credit Payments in 2021, the IRS will send you a Letter 6419 this month that will summarize how much you received.
With just over a month and half until Tax Day, keep your momentum going:
- Check your tax documents: Make sure that you have received a W2 from every company you worked for as an employee in 2021. If you worked on a contract basis—for example, as a rideshare driver, and earned $600 or more, you should receive a 1099-MISC. Additionally, financial institutions must send you a 1099-INT or 1099-DIV if you earned $10 or more in interest, dividends or capital gains.
- Request missing or corrected documents: If you are missing any W2s, 1099s or other tax documents or received incorrect ones, notify the appropriate sender immediately.
- Begin your tax return: Once you have all your documents, send them to your tax preparer or start your return via IRS Free File or the tax software of your choice.
- Start saving for your tax payment: If your prepared return indicates that federal or state income tax is due and you don’t have the cash on hand, determine a plan to save up that money between now and Tax Day.
- File and plan for your tax refund: On the other hand, go ahead and file if you’re expecting a tax refund and figure out a smart use for that money, such as building up your emergency fund or paying off some debt.
With less than 50 days to go, it’s time for a status check:
- Get caught up: If you haven’t started your tax return, make it a priority now.
- Continue saving for your tax payment: Keep setting aside the money you need to pay Uncle Sam in April.
- Finalize your refund plan: Retirement savings and investments in your home also make wise uses for your tax refund.
There are just a few more tasks to complete:
- File your taxes by the deadline: The IRS deadline is April 18. State income tax deadlines may vary.
- File an extension if needed: If you really can’t finish your return by the deadline, you can file an extension, which gives you until October 15 to file. However, the IRS suggests estimating your tax liability and paying that amount with your extension in order to limit potential penalties.
- Adjust for next year: If you significantly overpaid or underpaid income taxes for 2021, you can make changes to avoid this when you file your 2022 tax return. This includes things like updating your W-4, contributing to your 401(k) or IRA account up to the IRS limit or making estimated tax payments throughout the year.