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Timing to file a 2020 tax return is very important this year – if you get it right, it could lead to a bigger stimulus check.
The Senate is expected to accept President Joe Biden’s $ 1.9 trillion stimulus plan this week, which includes $ 1,400 stimulus checks for Americans receiving the full amount.
So far, the payments are based on the same requirements as the first two checks – the full amount will go to individuals with up to $ 75,000 in adjusted gross income and married couples filing jointly with up to $ 150,000 in income. Additionally, dependent children and adults may also be eligible for a $ 1,400 check.
Of course, some of the details could change in the coming days as the Senate considers the bill. Still, the timing of filing 2020 taxes before or after the stimulus is finally approved could make a difference in the size of the stimulus check received.
When it makes sense to apply as soon as possible
One reason to file your 2020 tax return before the next Covid relief bill passes is if you experienced something that changed your eligibility for a payment or means you should receive a higher amount, according to certified financial planner Luis Rosa, agent enrolled and founder of Build a Better Financial Future in Henderson, Nevada.
That includes things like having a drop in income from 2019 to 2020, having a baby, or bringing another child or dependent into your home.
If this is the case, you can claim past stimulus payments due on your tax return as a recovery refund credit and make sure you have the most up-to-date information on file for the next round, he said. This could lead to a larger tax refund or lower the amount you owe to the IRS.
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If you are someone who has not had to file a tax return before, you should file one this year, as it is the only way to claim the stimulus checks that were owed to you and to make sure the IRS has your information for any future payment.
Those who changed their bank accounts or moved in the last year may also want to file their taxes now. As with previous stimulus payments, the IRS will send the next ones first by direct deposit using the bank account on file and then by mail to the addresses they have.
If the IRS has the wrong address or bank account for you, it could significantly delay the receipt of upcoming stimulus checks and potentially mean you don’t get one. If that happens, you may have to wait to claim the money on next year’s tax return.
“Ultimately, you can still get the stimulus payment on your 2021 return,” said Henry Grzes, senior manager of tax practice and ethics for the American Institute of Certified Public Accountants. “The problem is, if you need the money today, waiting until March 2022 to get the money will not help you.”
When it might make sense to wait
Of course, it may make sense for some people to wait before applying to get a larger stimulus check.
If you made more money in 2020, it could make you ineligible for a payment or it means you will get a lesser amount.
That means some people may want to file their tax return after the last Covid bill is approved and any stimulus removed, so the payment is calculated using their 2019 information. If you can fall into this category, it could be worth it. It’s worth preparing your 2020 taxes to see what your adjusted gross income was and compare it to the guidelines in the latest stimulus bill, Rosa said.
“You can prepare your tax return and not file it so that at least you know where you are,” he said, adding that if you received a payment this way, you would not be penalized later or the IRS would not ask you to do so. return the money.
Without a doubt, delaying the filing of your 2020 tax return means that you are delaying the return of any refund due to you. For some, waiting until the stimulus bill passes to receive a payment might not be worth it, according to Grzes.
“You don’t want to unnecessarily delay filing your 2020 return, especially if you already have $ 2,000,” he said. And, if you owe the IRS, you still have to pay your bill before the April 15 filing deadline or you could incur penalty charges.
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