Tax Day Guide: Experts on What You Must Know About Filing Your 2021 Taxes

Tax Day is right around the corner, so if you haven't filed your return to the IRS yet, it's time to sort out your paperwork. Here's everything you need to know about forms, deadlines and the hefty penalties you'll want to avoid, plus expert advice from taxation specialists.

When Is Your Tax Return Due?

Tax Day, the deadline for filing your federal tax return, is usually April 15. For 2021 returns, it is April 18—next Monday. This is because IRS offices in the District of Columbia will be closed on Friday, April 15, to mark Emancipation Day (which falls on April 16, but is observed on the closest weekday).

Residents of Massachusetts and Maine get an extra day to file, thanks to another local holiday. Patriots' Day, observed on the third Monday of April in both states, falls on April 18 this year, so Tax Day moves to April 19.

Service personnel in a combat zone are given more time to file and to pay, interest-free and penalty-free, as are people who live in areas affected by federally declared disasters. These include parts of Tennessee, Colorado and Puerto Rico.

Americans abroad get an extra two months, so have until June 15 to file.

If you need more time to complete your return, you can request a six-month extension until October 17 (because October 15 falls on a Saturday this year). You don't need to give a reason, but you do need to ask for the extra time. The easiest way to do that is through the IRS website. Remember, this extension is just for filing—it doesn't give you extra time to pay taxes owed.

Penalties for Late Filing

If you fail to ask for an extension and owe money, the "penalties mount up fast," warned IRS spokesperson Eric Smith. "If you file more than 60 days after the deadline, there's a minimum late-filing penalty of $435 that usually applies."

The IRS penalty for late filing is 5 percent of the unpaid taxes for each month, capped at 25 percent. Interest is charged too, "currently at the rate of 4 percent per year, compounded daily," Smith told Newsweek.

Even if you can't pay what you owe, it's best to file on time, he added. "Sure, there'll be penalty and interest on any money that comes in after the deadline, but those charges will be a fraction of what it will be if you also wait to file."

The late payment penalty is 0.5 percent a month, or 0.25 percent if you have agreed a payment plan with the IRS.

If the revenue owes you money instead, don't wait too long to ask for it. "If you're getting a refund, you'll still get it in full, even if you file after April 18. Just don't procrastinate too much. Federal law normally only allows tax refund claims until three years after the deadline," Smith said.

Do Federal and State Taxes Have the Same Deadline?

Most states use the same date as the federal tax deadline, but not all. Exceptions include Delaware (May 2), Louisiana (May 16) and Maryland (July 15).

Check your state government's website for details.

How to File Your Tax Return

First, gather the relevant paperwork about your income, whether that's a W-2 employee wage and tax statement, or a freelancer's 1099-NEC form.

Brad Sprong, private enterprise tax leader at KPMG, told Newsweek: "The IRS will match those up to your tax return. If you fail to be prepared and have a 1099 that you don't show on your tax return, the IRS will figure that out and adjust your tax accordingly. So, make sure you have all your documents ready."

Your tax return should also include any income linked to cryptocurrencies, as well as earnings from the gig economy. All unemployment benefits for 2021 are fully taxable too—a change from 2020.

Dividends or interest earned on investments will be listed on forms 1099-DIV or 1099-INT from your bank. Any student loan interest you've paid will be on 1098-E. If you're a college student or have a dependent who is, you'll receive a 1098-T form that shows how much you have paid in tuition and any grants or fellowships.

If you work for yourself, "your income and expenses related to your self-employment are generally reported on Schedule C of your Form 1040 tax return," said Sprong. Those who have made a payment as a small business or self-employed individual are likely required to file a 1099 information return as well.

Go Electric

Whichever forms apply to you, Smith recommends filing electronically. "It takes much longer to process a paper return, and people make many more mistakes on paper returns.

"Even though more than nine in 10 returns are now e-filed, about 40% of those that are still filed on paper are actually prepared with computer technology. So, if either you or your tax preparer are already using tax software anyway, take the next step and e-file that return, rather than printing it out, putting it in an envelope and mailing it to the IRS."

Should You File a Return Even If You Don't Owe Tax?

If you're not obliged to file a return for 2021, you might decide not to bother with the form. After all, you aren't running any risk of penalties if you don't owe any money. Not filing can lead to problems, however.

Sprong explained: "Your social security in the future might be impacted. Social Security pulls everything from your tax return, so if you don't file, you don't have a record of your earnings. There's also other credits you can get, like the stimulus payments—those were driven off your tax return.

"There's no obligation to file if you're under the threshold for paying, but you should because otherwise you won't get your refund. And if you're eligible for credit, you won't get it, because the IRS doesn't know you're out there."

What Is the Standard Tax Deduction?

You are required to file a federal tax return if your gross income exceeds the standard deduction for your category.

For 2021, the standard deduction for income tax is $12,550 for single filers, $18,800 for head of household and $25,100 for married couples filing jointly. Dependents should file a return if they have unearned income over $1,100, earned income over $12,550, or total income that is more than the larger of either $1,100 or their earned income (up to $12,200) plus $350.

Taxpayers who are 65 or older can claim an extra $1,350 deduction or $1,700 if using the single or head of household status.

Should You Opt for Itemized Tax Deductions?

Sprong recommends that you think carefully about deductions before completing your return. You can opt for the standard deduction for your category, or itemize eligible expenses on your form if you think doing so will reduce your taxable income further.

Common deductibles are "charitable donations, mortgage interest, and state and local taxes," he said. The local taxes deduction is capped at $10,000.

Medical expenses that amount to more than 7.5 percent of your adjusted gross income are also deductible, as are some contributions to individual retirement accounts. The contribution limit for traditional IRAs in 2021 is $6,000 or $7,000 if you are over 50.

If you give to charity, the IRS advises you to get a receipt or at least an acknowledgement letter from the charity before filing your return.

Tax Credits

Tax credits reduce the amount you have to pay, or increase any refunds. They include the earned income tax credit for people on low to moderate incomes, the child tax credit, the American opportunity and lifetime learning credits for education expenses, the child and dependent care credit and the savers' credit for retirement contributions.

Where Can You Get Help Filing a Tax Return?

To get extra help, you can contact a licensed professional in your area or try an online service, according to Sprong. "I call them DIY software, but they will walk you through the process, and a lot of them have really good questions and answers that walk you through how to prepare your tax return.

"If you have a lot going on, you might want to talk to somebody like us. If you just have one form, maybe that's an easier thing to do yourself."

You can also find more information on your options at irs.gov/filing.

What If You Live and Work in Different States?

If you work in a different state than the one you live in, you'll likely have to file three tax returns, according to Sprong.

An individual who lives in New Jersey but commutes to a job in New York City will have to file federal, New Jersey and New York returns, he explained. It's not all bad news: New Jersey will give a credit for taxes paid to New York, though capped at New Jersey tax rates.