NEWS: It’s tax season! Federal tax returns are due Tuesday, April 18 this year.
WHAT IT MEANS TO YOU: Time to fill out those returns!
Yes, it’s that time of year. Even if your taxes are E-Z (see what I did there?), things change every year, and it can be confusing. The more complicated your taxes are, the more confusing it can get. This is our annual attempt to answer some FAQs for those filing their 2022 taxes.
Q. Why is tax day Tuesday, April 18, and not Monday, April 17? After all, we live in New Hampshire, not Massachusetts and Maine!
A. Monday, April 17, is the Emancipation Day holiday in Washington, D.C. That city’s holidays have an impact on tax filing, since the IRS is there and workers get the day off. As you know, Maine and Massachusetts taxpayers often get an extra day to file because of Patriots Day, which is the third Monday in April. So, at least this year, New Hampshire and the rest of the country get one more day, too.
Q. OK, you said 2022 taxes, but it’s 2023…
A. Right. You are filing for the 2022 tax year, but are filing in 2023. That can be confusing for some people, so it’s worth pointing out, as you’ll see below.
Q. Is anything different this year?
A. Some things you have to know, even if you file a simple 1040, are:
- This year’s standard deduction is $12,950 for single filers, $25,900 for joint filers and $19,400 for head of household. That’s the deduction for tax year 2022, which is the return you are filing by April 18. You’ll see some articles online that say it’s $13,850, $27,700 and $28,000. That’s for the 2023 tax year, which you’ll file for in 2024.
- No more $300 charitable deduction. For the past couple of years, there’s been an allowance of a $300 charitable deduction ($600 for joint filers) that is separate from the standard deduction as a way to get people to keep contributing to charity during the pandemic. That’s gone. All charitable deductions are now part of an itemized deduction, or you don’t claim it if your itemized deductions are less than the standard deduction (more on that shortly).
- Reduced Child Tax Credit. The Child Tax Credit was temporarily increased the past couple of years, from $2,000 to $3,600. Since it raised millions of families and children out of poverty (temporarily), some in Congress tried to make it permanent, but that effort failed. So, it’s back to $2,000. This means if you claim a dependent or more than one, your return will likely be much lower than last year even if nothing else has changed much.
Q. I heard returns are lower this year, even for people who don’t get the Child Tax Credit. Why?
A. The CTC is only one of the tax credits that has bounced back to its 2019 level after getting a boost to help people financially during the pandemic. A tax credit reduces the amount of tax you owe (as opposed to a deduction, which reduces your income), so it can make a very big difference in the size of your return. Credit changes this year are:
- CTC is now $2,000 per dependent (down from $3,600 in 2021)
- The Child and Dependent Care Credit is a maximum $2,100 (down from $8,000 in 2021). This is a credit for those caring for a child or a dependent with disabilities.
- Earned Income Tax Credit is a maximum $530 for taxpayers with no children (down from around $1,500 in 2021.)
Q. What’s an Earned Income Tax Credit? Is that something I can get? I do earn an income.
A. The Earned Income Tax Credit is a tax break for people who have low to moderate incomes. To qualify this year, if you have no kids, your “earned income” must be $16,480 for single filers, and $22,610 for married filing jointly. Earned income means what you make before taxes and other deductions are taken out. The amount rises, depending on the number of kids, to a high of $53,057 and $59,187 for those with three kids.
There are other qualifications, too. For instance, you must have had a Social Security number for the entire tax year, have been a U.S. citizen or resident alien for the entire year, and more.
Self-employed workers qualify, but they must claim all of their eligible deductions, including depreciation.
The IRS has specific criteria for what constitutes earnings and what doesn’t, whether you’re self-employed or not. They explain it all on a special page on their website.
As many as 20 percent of those eligible don’t claim their EITC.
The IRS is a little sensitive about the credit, because taxpayer advocates have been pointing out for years that the huge majority of people who are audited are those who claim the EITC, which means the nation’s lowest-paid taxpayers are getting a lot more scrutiny than it’s millionaires. This has become more of an issue in recent years, as the IRS has dealt with staffing and resource problems after decades of budget cuts.
The IRS says that the reason more EITC tax returns are audited is (a simplification), the errors are easier to catch. The majority of errors have to do with claiming a child who doesn’t qualify, with mistakes concerning income the next biggest issue.
But it’s also an easy audit for the IRS. Those who claim an EITC who are audited undergo a “correspondence audit,” where they are mailed a certified letter asking for documentation to fix the issues with their claim. The IRS holds the EITC money until the taxpayer responds and straightens it out. Many never get it right, or don’t respond, and therefore, they don’t get the tax break. So, it’s a much easier audit for the IRS than wading through a wealthy person’s loopholes, tax shelters and business losses likely conjured by a crack team of accountants.
If you claim the EITC, your return will be delayed because the IRS has to run a check on it. This year’s EITC returns are due to start going back to taxpayers in mid-February.
It may sound like a pain, but if you qualify, and make it through that obstacle course, it’s worth it. A little farther down, we’ll talk about how to get free tax help that will give you the resources to claim this important credit.
Q. Are there any other tax credits I may be eligible for?
A. Two good ones that are designed to help with the costs of higher education are the American Opportunity Tax Credit and the Lifelong Learner Tax Credit.
The AOTC is for students who are in college and is a maximum $2,500. The LLC is for people pursuing undergraduate, graduate and professional degree courses, as well as those to acquire or improve job skills. It’s a maximum $2,000 per tax return.
The IRS has a page that details how it works, who qualifies and how to claim it.
Q. What if I’m self-employed? I get some breaks, right?
People who own a business or are self-employed can get a host of deductions – including all those business deductions that the work-from-home folks who still have a boss want but can’t get anymore.
It’s a good idea to hire a professional tax accountant to do your taxes for you. They can work magic figuring out things that you may have no clue about, like depreciation, business losses and more. Even if you have a side gig or don’t make a ton of money with your own business, it’s a good idea to hire a tax accountant to navigate the numbers for you.
You also have to pay self-employment tax, even if you also have a regular job. Self-employment tax covers Social Security, Medicare and more. It may not seem fair, but it actually is. It would come out of your paycheck if you were working for someone else. And you’ll be glad you did when you get to retirement age and reap the benefits. If you’re already there, you know what I’m talking about.
Q. You said you were going to talk about the standard deduction?
A. Oh, right. Back before the standard deduction went way way up with the 2017 tax changes, it was worthwhile for most people to itemize their deductions. Things like charitable giving, mortgage interest, car registration fees, three-martini lunches, etc. The choice was, and still is, to itemize your deductions or just take the standard one. But back then, it was half of what it is now. Most people’s itemized deductions will not equal the $12,950 standard deduction individual filers, $25,900 for married filing jointly, or $19,400 for head of household.
One sneaky thing, too, with that tax change, is that a lot of things that could be deducted before can’t be. For instance, business deductions for people who are not self-employed are no longer allowed, even if you’re working from home. If you have a home equity line of credit or loan, you can only deduct the interest if you used the money for home renovations or things related to that. You used to be able to deduct the interest exactly the same way you deducted interest for your regular mortgage; it didn’t matter if you used the HELOC or loan to buy a boat, go on a European vacation, or buy 1,000 pairs of shoes. That’s a big deduction that’s no longer available.
So, for most taxpayers who work one or two jobs and don’t have a lot of investments or other income, just taking the standard deduction is the way to go, and makes it a lot easier to file your taxes.
Q. I’m pretty sure the electronic tax service I use online will figure this all out for me, and that’s free, right?
A. Let’s tackle the easy part first. There IS free tax help available, but it’s likely not going to be the commercial online service you use.
The IRS offers “free file” for anyone with an income under $73,000. You can do it online and they use the same software the commercial services do.
If you want an actual human being to help you, that makes a lot of sense. The IRS Volunteer Income Tax Assistance Service (VITA) and Tax Counseling for the Elderly (TCE) both have locations all over the Manchester area, including counselors who can speak French and Spanish.
They can answer your questions and help with the trickier aspects of filing taxes.
Before you go, read the IRS page explaining how it works and what documents you may need. The page also has a locator button, so you can find the one closest to you.
While commercial online tax filing services work well for a lot of people, keep in mind that if you use one, you may have to pay if you need extra services. Usually it’s only free for the simplest tax return. For instance, if you have any self-employment income at all, you have to pay a self-employment tax. The service may want you to switch to being a “business filer,” for a fee, even if your primary income is from an employer. If you’re using an online service and it looks like it’s going to cost you money, you don’t have to pay until you get to the part where you file the taxes.
It also does a good job of “figuring things out,” but you still have to put the numbers in. It’s only as good as your understanding of the questions. If the questions are confusing, or you’re not sure what it’s referring to, it may not help. You could end up costing yourself money.
If you have things that need figuring out, pay for a professional, or check out free VITA or TCE services.
Q. When should I pay someone to do my taxes?
A. If you are self-employed, have income from several sources, have issues that complicate your taxes (medical, property, etc), it’s worth it to pay a tax professional to do your taxes for you. Yes, they charge a fee, but it’s a fraction of the money (and aggravation) that they will save you. The best tax professionals charge a flat fee or hourly rate, usually based on how complicated your taxes are.
The IRS has a “choosing a tax professional” page that explains how to find the right tax professional for your circumstances, and how to make sure they’re legitimate.
Q. I’m old school and like to get a check in the mail, why does it take so long to get my return?
A. The IRS strongly urges taxpayers to file electronically (rather than stuff an envelope with your return and W-2s and put it in the mail), and to sign up for direct deposit. Some 90 percent of people who get their refund by direct deposit get it within 21 days of filing.
If you have a bank account, but prefer getting a check, it’s going to take longer, because it’s a different process that’s more labor intensive. The IRS also points out that with direct deposit, there’s no chance of the check getting lost in the mail or stolen.
If you filed your taxes using snail mail last year, you still may not have the refund. That’s because someone has to open it up and physically go through it, and the IRS has been understaffed for years. They’re catching up, but it’s still a long haul. The good news is, even if you haven’t gotten your 2021 refund, you can still file your 2022 taxes electronically and get the refund directly deposited in your account, likely within 21 days.
Q. Direct deposit sounds great, but I don’t have a bank account. What should I do?
A. The FDIC Get Banked program is trying to help people, particularly low-income ones, who don’t have bank accounts, to get one. It provides information about why having an account is important, how to open one, how to find one without fees, and more.
A credit union is often a good option for people who want to have an account, but don’t have a lot of money. Did you know the first credit union in the U.S. was on Notre Dame Avenue on Manchester’s West Side, and grew to become St. Mary’s Bank? That means if you live in the Manchester area, you are in the credit union wheelhouse. Credit unions are member-owned, which means their fees are lower, and they are community-based.
Q. I’ve heard that prepaid tax return cards are good if you don’t have a bank account?
A. It depends on your definition of “good.” Prepaid debit cards are offered by tax preparers including H&R Block, TurboTax and more. While they’re safer and possibly quicker than a check, they come with high fees. Depending on which service you use, there may be withdrawal fees every time you use it, as well as a monthly fee. Why give your money to them?
Your tax return may be the biggest amount of money you get all year. Take good care of it. Open a bank account. Seriously.
And there are similar issues with tax return loans. Yes, you get your money a little faster, but you also pay a big fee for it. While you may be desperate for the money, in the months and weeks leading up to when you file your taxes, try to get your finances into a place where you can wait up to 21 days (and maybe less!) to get the return.
Q. I’m worried that taxes are so complicated, I’m going to get scammed.
A. So is the IRS! And a lot of consumer advocate groups.
Before we get into the nitty-gritty, the best way to check on your refund is to go to IRS.gov and click on “Where’s my refund?” You put in your name, Social Security number and taxable income (the number from your tax document you filed) and it will tell you if it’s being processed or on its way. Anything else you get by email, or on the phone, that wants to give you information about your return is likely a scam.
Also, anything – ANYTHING — that asks you to buy gift cards to pay or do anything else with is a scam. No government agency will ever ask you to buy a gift card at Walmart, then text them the PIN. Ever.
In general, the IRS will NEVER:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS almost always will first mail a bill to any taxpayer who owes taxes.
- Threaten to immediately bring in law enforcement to have you arrested for not paying.
- Demand that taxes be paid without giving you a chance to question or appeal the amount owed.
- Call unexpectedly about a tax refund.
Tax scams to keep an eye out for are:
Any email that asks for information. If the IRS has an issue with your tax documents or return, you will get something in the U.S. mail. Ignore and delete emails that have subject lines like “tax refund payment,” “question about your tax return,” “you must fill out form [whatever]” or anything similar, even if it has an IRS logo. Do not click any links and never provide unsolicited information, particularly your Social Security number or bank account numbers.
Phone calls that seek information. Do not provide information over the phone to anyone who calls and identifies themselves as the IRS, FDIC, the local sheriff, or anything else. This is even if they say you won’t get your refund, your bank account has been hacked, your identity has been stolen, they’ll “cancel” your Social Security number (this is impossible and no one will do it), they’ll put a lien on your house or they’ll arrest you. If you believe they may be legit, hang up, and if they claim to be your bank or the sheriff’s department, call using the official phone number, not calling the number back or asking them for a number to call. If it’s some big agency like the IRS or FDIC, Google the name of the agency, what you’ve been told and the word “scam” and see what comes up.
Don’t accept unsolicited information. If you are emailed a form to fill out, don’t fill it out. The IRS will contact you by mail if there is something wrong with your tax return, and it likely won’t be any time soon, but weeks or months after you file. Don’t click on anything that promises “information about your tax return.” It’s a scam. If you want to check your return, go to IRS.gov, and select “where’s my refund.” Do not fill out online surveys purporting to be from tax advocacy groups or the FBI. Do not click on anything that says you owe something like “the federal student tax” or “the senior citizen tax” or “the renters tax” or any other tax you’ve never heard of.
Q. How do I know that a tax preparer is legit?
If you want volunteer tax help, get it through VITA or TCE (see information above). That way, you’ll know it’s a guaranteed IRS-backed service.
If you use a professional tax preparer, ask for their preparer tax identification number. Anyone who prepares taxes for money is required to have one. You can check the number on the IRS’s PTIN page to make sure they’re legit.
Remember, this person has access to your Social Security number, your bank account information and more. They must be professional and trustworthy. Don’t just take their word for it, make sure they are.
Here are some tax preparer red flags:
- Asks for a fee upfront. A scam preparer may take off with your fee and never file your taxes. Most charge after they’ve performed the service.
- Charges a percentage of refund as the fee. Most charge a flat or hourly fee that depends on the complexity of your taxes. Ask for their free structure up front and if you don’t like it, find someone else to do your taxes.
- Tells you the refund will be mailed to them, they’ll take the fee out, and forward you the rest of the refund. Your refund should go to you and no one else. If it goes to your preparer to take out their fiee, you may ever see any of the money.
- Has you sign a blank return. Never sign anything that isn’t completely filled in. And read it before you sign it.
- Doesn’t sign the return or put their PTIN on it. All professional tax preparers are required by law to sign the space that’s provided for them on the return, and put their PTIN. If they don’t do this, there’s a problem.
- Hasn’t entered your bank routing and account numbers on your electronic file document. If they are e-filing for you, they will give you a consent form that will show the bank account and routing number of your bank. Make sure the numbers are on the form, that they are yours and they are correct.
The IRS has a page on its website about how to spot a scam and what to do if you’ve been scammed.