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The timing of filing a 2020 income tax return is extremely 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 to receive the full amount.
To date, payments are based on the same requirements as for the first two checks: The total amount will go to individuals with up to $ 75,000 of adjusted gross income and couples filing joint actions with up to $ 150,000 of income. In addition, dependent children and adults can also receive a check for $ 1,400.
Of course, some of the details may change in the coming days, as the Senate ponders the bill. Still, the timing of filing 2020 taxes before or after the stimulus is finally approved can make a difference in the size of the stimulus check received.
When it makes sense to archive as quickly as possible
One reason to file your 2020 tax return before the approval of Covid’s next relief bill is if you have experienced something that has changed your eligibility for a payment or means that you should receive a larger amount, according to the financial planner Luis Rosa certified, enrolled agent and founder of Build a Better Financial Future in Henderson, Nevada.
This includes things like a drop in income from 2019 to 2020, having a baby or bringing another child or dependent into your home.
If so, you can claim previous stimulus payments due on your tax return as a recovery discount credit and make sure you have the most up-to-date information on file for the next round, he said. This can lead to a higher tax refund or reduce the amount you owe to the IRS.
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If you have not previously had to file an income tax return, you must submit one this year, as it is the only way to claim stimulus checks owed to you and to ensure that the IRS has your information for future payments.
Those who changed their bank accounts or moved last year can also file their taxes now. As with previous stimulus payments, the IRS will send the next ones first via direct deposit using the bank account on file and then by mail to the addresses they have.
If the IRS has an incorrect address or bank account for you, it can significantly delay the receipt of any future stimulus checks and potentially mean that you will not receive one. If that happens, you will have to wait to claim the money on next year’s income tax return.
“You can still ultimately get the stimulus payment on your return from 2021,” said Henry Grzes, chief manager of tax practice and ethics at the American Institute of Certified Public Accountants. “The problem is if you need the money today, waiting until March 2022 to receive it is not going to help you.”
When can it make sense to wait
Of course, it may make sense for some people to wait for the file to get a bigger stimulus check.
If you make more money in 2020, this could make you ineligible for a payment or mean that you will receive a lower amount.
This means that some people may want to file their tax return after Covid’s last invoice is approved and any stimulus leaves, then the payment is calculated using your 2019 information. If you can fit into this category, it may be worth preparing your taxes for 2020 to see what your adjusted gross revenue was and compare it to the guidelines of the latest stimulus bill proposal, Rosa said.
“You can prepare your income tax return and not file it so that you at least know where it is,” he said, adding that if you received a payment in this way, you would not be penalized later or asked by the IRS to return the money.
To be sure, deferring the filing of your 2020 income tax return means that you are delaying receipt of any refunds due. For some, it may not be worth waiting until the stimulus project is approved to receive payment, according to Grzes.
“You don’t want to delay unnecessarily completing your 2020 return, especially if you already have $ 2,000 in cash,” he said. And if you happen to be in debt to the IRS, you will still have to pay your bill by the April 15 deadline or you may incur fines.
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