How to Maneuver through Tax Season
1. Start early to avoid delay
According to the IRS, this year's filing season can be
tough, as IRS employees work hard to answer questions about new and potentially
confusing filing requirements. If your return is flagged for a review, your
refund will almost certainly be delayed. What helps?
If your tax return is simple (filed as a single W-2 with
standard deductions), get it done early and file electronically. Avoid
potential mail delays by setting up a direct filing with the IRS.
If your tax return is more complex, gather your information
and sign up for the help you'll need ASAP. The earlier you start the process, the
more time you will have to track down missing information, settle
discrepancies, or find a qualified tax professional.
Inaccuracy is a common reason for IRS audits. The IRS
matches the information you provide on your tax return with your employer's W-2
forms; 1099s from clients, banks, or investment firms; and payment data from
the government itself. If your tax return differs from what the IRS has on
file, it may be flagged for manual review, which can lead to a full audit and
possibly delay your refund.
If you can't get your tax information together by the April
18 deadline, you can file an extension to automatically move the deadline to
October 17. But don't wait until you pay your taxes: The IRS expects you to
earn the benefit of the Faith Estimate if you want to avoid penalties and
interest. Also consider this year’s entire IRS deadline, including estimated
2022 tax payments.
Parents may be eligible for child tax credits ranging from
$3,000 to $3,600 per child for the 2021 tax year. If you qualify, you may have
already received half of the credits available as child tax credit payments in
advance between July and December. You can claim the remaining half of your
2021 tax credits using Schedule 8812.
Be sure to double-check for accuracy. If your numbers do not
match the IRS data, the agency will flag your return. You can check your
numbers with IRS Letter 6419, which details how much taxpayers received in
advance of their Child Tax Credit payments. If you can't find your IRS letter,
use your tax copy to check Economic Impact Payment amounts.
If you received a third stimulus payment in 2022, you should
have received Letter 6475 from the IRS to document it. You can also check your
tax copy for payment details. This information can help you decide whether to
claim a refund deduction on your 2022 tax return. The refund deduction credit
is for taxpayers who have not yet received the full amount of stimulus due to
them in the previous three rounds of stimulus payments—at this point, this is
rare.
6. Count the party work as income
If you earn money in the temporary jobs economy — driving
for a delivery app, renting a parking space or taking care of dogs at home, for
example — you must report your income and pay taxes on it. Depending on whether
you worked as an employee or contractor, you may need to file a Schedule C:
Profit or Loss from Business. The good news: If you're self-employed, you may
be able to deduct some car or home office expenses. The bad news: Business
taxes can be a little more complicated. For more information, visit the IRS
Craft Economy Tax Center.
Remember that capital gains taxes are not based on the value
of your investments: they are based on the profits you realize when you sell an
investment for more than you paid. If you don't sell anything in 2021, you
don't owe anything. However, if you sell stocks, mutual funds, real estate,
cryptocurrency, or any other investment to make a profit, you must report the
gain (or loss) on your tax return and pay applicable capital gains taxes.
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