Tips for the 2021 US tax return season... and beyond

Jürg Niederbacher
Partner, Leader Private Clients & Family Offices, PwC Switzerland

With a new year already here, we thought it helpful to provide you with a few tips that might make your tax year a little easier, ranging from the near term to further in the future.

Collecting and gathering your 2021 tax information

Soon you’ll start receiving an influx of documents from employers, banks and other institutions. Start organising as they come in, rather than trying to pull it all together close to the deadline. Your tax advisor is always grateful if you send the documents sooner rather than later, even if there are a few final items missing. The filing starts in the beginning of February and it’s always easier to file early if possible. It’s also important to keep the deadlines in mind.
Important due dates:

Tax season opens on 24 January.
18 April 2022
- US tax returns are due or extensions need to be filed for US residents. This is also the final deadline for 2021 tax payments.* This is also the deadline to contribute to an IRA/Roth IRA.
- Foreign Bank Account Report (FinCEN114) due date (automatic extension to 15 October).

15 June 2022
- US tax returns are due or extensions need to be filed for US non-residents.** The automatic extension also applies to tax due and penalties. However, interest is due from the original due date, 18 April 2022.

15 October 2022
- The extended due date for US residents. US non-residents have an opportunity to file a second extension, giving them an additional two months to file the return.**
- Foreign Bank Account Report (FinCEN114) due date.

15 December 2022
- The extended due date for US citizens living outside the US who have been granted the ‘discretionary’ extension from the IRS by filing an additional extension on or before 15 October.

Set expectations for the 2021 tax return season

According to the Treasury officials, taxpayers and return preparers should get ready for a challenging and frustrating tax season as many of the processing delays and customer-service shortages that have plagued the Internal Revenue Service for years will persist this year. The officials said funding cuts and staffing shortages due to the ongoing health crisis are causing the problems.

The Treasury officials said that it’s critical for Congress to pass the Democrats’ social-spending bill, which includes US$80 billion for the IRS to bolster the agency’s enforcement efforts and its service operations.

As of late December, the IRS had backlogs of 6 million unprocessed original individual returns (form 1040), 2.3 million unprocessed amended individual returns (form 1040-X), more than 2 million unprocessed employer's quarterly tax returns (forms 941 and 941-X) and about 5 million pieces of taxpayer correspondence – with some of these submissions dating back at least to April and many taxpayers still waiting for their refunds nine months later.

In addition, IRS representatives were only able to answer about 10% of phone calls to the agency last filing season, and, as of mid-November 2021, the agency still had a backlog of roughly 8.6 million returns to process.

Key actions taxpayers can take to help ensure the smoothest processing of their 2021 tax returns is to:

Electronically file.
If you’re expecting a refund, provide the IRS with your direct deposit information with the filing of your 2021 tax return.
Should any payment be expected, make sure this is paid timely and by 18 April 2022 in order to avoid any further assessment of penalties.

Start planning 2022

It’s never too early to plan for the 2022 tax filing. There are a few strategies that’ll make the next tax season less daunting. Make sure you have enough withheld if you receive your income through a US employer.

If your income is derived from other sources such as foreign employment, capital gains or pensions then you may be subject to quarterly estimated tax payments. It’s important that you contact your tax advisor and come up with a plan for estimates especially if you have an unusually large income post in any of the quarters. This might require your tax advisor to provide you with new or updated vouchers so that you can make the payments timely.

This is also the time to look over retirement and pension accounts if you’re at retirement age – it’s important to make the yearly minimum distributions, as failing to do so can come with high penalties. If you’re a younger individual it’s a good time to start funding your plans, optimising your tax savings in 2022.

If you have estimates due, they need to be paid:

18 April 2022 (first quarter)
15 June 2022 (second quarter)
15 September 2022 (third quarter)
15 January 2023 (fourth quarter)

Keep yourself updated on regulatory changes

There are constant changes to the US legislation, which may have an impact on your personal tax return. It’s therefore important to keep up with what’s going on in the Senate and House of Representatives.
Recently we had the Infrastructure bill that included changes and clarifications to the treatment of crypto currencies. We also have the Build Back Better bill (currently stalled in the Senate) that would have much larger implications for most individual taxpayers. The bill contains among other things, provisions to:

Create new surcharges of 5% on modified adjusted income over US$10 million plus an additional 3% on MAGI over US$25 million.
Extend the American Rescue Plan Act Child Tax Credit (CTC) expansion through 2022 and make the entire CTC fully refundable on a permanent basis.
Extend the ARPA’s temporary expansion of the Earned Income Tax Credit (EITC) eligibility, phase-in rates and amount through 2022.
Limit Individual Retirement Accounts (IRAs) contributions when balances reach US$10 million and accelerate required minimum distributions for those accounts.
Raise the cap on the state and local tax (SALT) deduction from US$10,000 to US$80,000 and extend this cap through 2030. The US$80,000 SALT cap amount would also apply to the 2021 tax year. For 2031, the SALT deduction cap would be set at US$10,000.
US$80 billion in funding for the Internal Revenue Service.

The Build Back Better bill may not pass the senate in its current form, due to the Republican opposition and two Democratic senators who view it as too costly, however the potential for tax reform in 2022 is present.

Set long-term goals

As with other wealth planning, it’s important to set long-term strategies in place for your taxes based on your individual circumstances. This can be simple as in rolling money over from an IRA to a Roth IRA or more complicated as in structuring your assets for estate purposes or the sale of a business in future years. Talk to your tax and wealth advisors and see if there’s anything that should be done now, and what can be done in the future. A few helpful tips are to:

Value your assets including properties, stock and autos.
Calculate approximate future minimum distributions from retirement plans.
Make plans for the sale of employee incentive assets such as options.
Fund retirement accounts so that you can take advantage of the tax saving in the long term.
If you live abroad, you may consider giving up your US citizenship.

*The extension only grants an extended due date for filing but not for paying.

**Not all states comply with the automatic two-month extension.

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