We’re well into tax season now, and there are some fiscally sound ways to handle your taxes that we always advocate. But this year is special, and deserves extra attention. Many people are still waiting for stimulus money that may not have been paid out yet. To ensure you get the next stimulus check, be sure to file your taxes sooner rather than later.
Here are some other tax moves to make to ensure a quick stimulus payment:
1. Use direct deposit to get your stimulus faster
In any year, we recommend using direct deposit when collecting any tax refund owed to you. Coupled with filing electronically, this can get you your tax refund in a week to 10 days. We like this option the best, because it makes refund anticipation loans (RALs) redundant.
With a RAL, you “borrow” the amount of money due to you from the IRS, minus a hefty fee. The lender (usually your tax preparer) is repaid by collecting the full amount of your refund.
We strongly urge people NOT to take a refund anticipation loan; the funds from your tax refund are on the way to you, and even in the slowest scenario you’ll have a check in less than a month.
When you file electronically with direct deposit, the typical taxpayer will see their refund deposited to their bank account in less than 10 days. It doesn’t make sense to pay hefty fees and interest to get the money any faster than that. In fact, if you’re so desperate to get your refund a week or two earlier that you’re seriously considering a Refund Anticipation Loan, we recommend you talk to a nonprofit debt counselor to get some help. We just don’t see any justification for RALs.
Find out if you’re eligible for free tax preparation through VITA (Volunteer Income Tax Assistance) or Tax Counseling for the Elderly (TCE) programs.
2. Don’t file for an extension on your taxes
Preparing your taxes sooner rather than later is almost always a good idea. You want to know as soon as possible what your situation is; do you have a refund coming? Do you owe money?
Even if you owe, prepare your return now so you know exactly how much money you have to pull together to settle your tax debt.
This year, filing for an extension could impact your ability to get any potential third round of stimulus funds, so plan to file as soon as you can.
Last year, the tax filing deadline was extended to July 15th, this year’s tax deadline has been extended to May 17th.
3. Stay informed about stimulus check updates
According to recent updates, the third stimulus check payment is expected to be sent out to some individuals this week. You can check the status of your next stimulus check by using the IRS Get My Payment Tool. You can also check our blog for frequent updates, and make sure you’re aware of what changes may happen in the proposed law.
That’s no reason to wait to file your taxes, though. The stimulus payment will be directed-deposited if you used that method for getting any tax refund due, so even if you filed your taxes early, you’ll get any stimulus payment due sooner than people who haven’t filed yet.
It’s also likely that the IRS will use your most recent tax return to determine your eligibility for a stimulus payout, and that means you shouldn’t wait.
We don’t know yet if the IRS will be basing your eligibility for a stimulus payment on your 2019 or 2020 return, but for many people, 2020 was the year incomes were lower. That means you want them to have that return as soon as you can so you’re more likely to get the full amount of relief. Don’t wait to file in case the IRS uses the latest return they have — especially if your income was higher in 2019.
4. Get unpaid stimulus money
You may have missed out on some stimulus money due from the first two rounds of stimulus payments. If that includes you, then you’ll definitely want to file your taxes right away, because the IRS will be including any overdue stimulus funds along with your tax refund this year.
That means it’s likely that if you miss out on a stimulus check this year, but are still owed money, you’ll get some kind of credit on next year’s taxes. That’s better than not getting the money at all, but it’s best if you file your taxes early this year to ensure you don’t have to wait any longer than necessary.
The IRS has a “Get My Payment” portal that will help you determine if you need to claim a Recovery Rebate Credit on this year’s tax return for any stimulus money you might have missed.
5. Check your state laws
Find out if your state has any special provisions for income tax rebates due to Coronavirus. It’s particularly important if you live in one state and work in another — if you transitioned to telecommuting last year, you could be taxed differently based on the state you reside in vs. the state your employer is located.
Since there are 50 different sets of tax laws, it’s impossible to know in advance if this kind of tax issue applies to you — you’ll have to do some extra homework when filing your taxes to be sure you’re paying everywhere you have to. Another reason to get started on your taxes sooner rather than later!
6. Start now
Even if you can’t afford to pay your tax bill right away, prepare your tax return as soon as you can. That way you’ll know how much to save in order to come up with the money you owe—and remember a third stimulus check is tied to your tax return, so you’ll either have part of your tax debt paid or you’ll be getting a larger refund than usual this year.
Once you’ve prepared your tax return, you’ll have a better idea of your true financial situation; if you have debts that are going to make recovering from the pandemic harder than you expected, talk to a free, nonprofit debt counselor for expert advice and assistance today.