The IRS recently posted a number of reminders about things taxpayers can do in December to make sure they are ready for the upcoming tax season. Here are some key highlights:
- ORGANIZE YOUR RECORDS:
Many tax deductions and credits require written documentation. Make sure your receipts for deductible expenses are safely stored with your tax records, or for digital documents, backed up in multiple locations. To claim a tuition credit like the Lifelong Learning or American Opportunity Tax Credit, you will need a copy of Form 1098-T from the school where you paid qualifying tuition and fees.
- CHECK THE STATUS OF YOUR ITIN:
If you use an individual taxpayer ID number (ITIN) to file tax returns, make sure that the number has not expired. In general, if you have not used your ITIN to file a federal return at least once in the last three years (2018, 2019 or 2020), it will expire on December 31, 2021. All ITINs with middle digits in the 70-88 range have also expired, as well as some with middle digits from 90 through 99. An expired ITIN can lead to processing delays or the IRS rejecting your return.
- CONTRIBUTE TO YOUR QUALIFIED RETIREMENT PLAN:
If you have not reached the annual contribution limit for your retirement plan, such as an IRA or 401(k), you may wish to put more money into the plan before the year ends. Contributions to traditional IRAs and other plans may be tax deductible, reducing your 2021 taxable income. Depending on your adjusted gross income (AGI), your retirement contributions may also qualify you for the Saver’s Credit, which can reduce your tax on a dollar-for-dollar basis.
A tax professional can help you find the best year-end tax strategy for your retirement accounts, and suggest other steps to ensure a worry-free filing season without unpleasant surprises.