For 2021 Tax Return:
The first step for every taxpayer is to gather all relevant tax documents. Begin by reviewing last year’s return and any associated documents. Then gather this year’s documents which may include W-2s, 1099s, personal property tax receipts, business receipts, K-1s, and any other documents that may be necessary to file your return. Second, take a mental inventory of your life in 2021. Did you have any major changes that would potentially impact your taxes, such as a divorce, a sale of your primary residence, start a new business, changes in your dependents, capital gains or losses, or other any other event with tax implications? If yes, then gather all documents relevant to your tax filing.
Finally, to minimize processing delays, accurately file electronically with direct deposit. Currently, the IRS is extremely backlogged with millions of paper filed returns from previous years coupled with funding and personnel cutbacks at the IRS spells trouble for any taxpayer filing a paper return and/or choosing a paper check. Taxpayers are being warned that tax refunds could be delayed past the typical three-week turnaround time if they file an inaccurate return or choose to file a paper return.
This year taxpayers have until April 18th to get their return filed since April 15th falls on a Friday District of Columbia holiday. To avoid any mistakes that could delay a refund being processed, taxpayers should wait to file until all documents from employers, financial institutions, and the IRS are collected, but if you cannot file by the April 18th date, make sure you file an extension. Unless your tax situation is simple (W-2 wage earner only) we do not recommend that you do your own taxes without having a sound understanding of the tax rules. If you are self-employed, we encourage that you use a professional tax preparer to file your return.
For 2022 Tax Return:
Did you start a new side venture or small business selling goods and services through third party payment apps like Venmo, PayPal, and Airbnb? Good news, this year you should receive your Form 1099-K by January 31, 2022, and filing should be business as usual. However, starting January 1, 2022, third-party payment providers will be responsible for reporting transactions totaling more than $600 and any number of transactions (compared to the 2021 current requirements of reporting totals of more than $20,000 with more than 200 transactions) to the IRS on Form 1099-K. This threshold change in 1099-K reporting came from The American Rescue Plan Act of 2021 signed into law on March 11, 2021.[1]
Form 1099-K includes the gross receipts of all reportable payment transactions. However, the gross amount reported does not include any adjustments. Keep excellent records of sales, returns, and adjustments. You still have the responsibility to report taxable income in whatever form received from your business. To ensure compliance with the new reporting threshold, update tax information with any third-party payment networks to continue accepting payments for sales of goods and services.[2]
[1] See BILLS-117hr1319eas.pdf (congress.gov) at Sec. 9674 (amending IRC § 6050W(e) to state the reporting threshold for third party network transactions is $600).
[2] Understanding Your Form 1099-K | Internal Revenue Service (irs.gov). See also Treas. Reg. § 1.6050W-1.
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