Tax Season Insights

NEW YORK — The tax season has officially started, with the deadline for filing your return set for April 15th. To ease the stress of upcoming deadlines, it’s wise to start preparing early.

“You don’t have to rush to the last minute, but it’s also not necessary to procrastinate,” advises Tom Oseven, who works in tax content and government relations at the National Association of Tax Professionals.

To get ready for tax filing, good practices include gathering your documents, signing up for direct deposit, and keeping a copy of your previous tax return. This year, changes influenced by Republican policies, including a new deduction some taxpayers should be aware of, follow a tax and spending bill signed into law last summer.

Miguel Burgos, a CPA and TurboTax expert, mentions deductions that include tax-free tips, tax-free overtime, auto loan interest deduction, and a special deduction for individuals aged 65 or older as of December 31.

Last year, the average tax refund was about $3,167, and forecasts suggest it could increase by $1,000 this year, thanks to adjustments in tax laws. Last year, over 165 million individual income tax returns were handled, with 94% submitted electronically.

If navigating the process feels overwhelming, there are numerous free resources available to assist you.

Essential Documents

While the necessary documents may differ based on your personal situation, here’s a general list of what most people will need:

• Social Security number
• – W-2 form (if employed)
• – 1099-G form if unemployed
• – 1099 form if self-employed
• – Records of savings and investments
• – Qualified deductions for education, medical expenses, charitable donations, etc.
• – Tax credits like the child tax credit and the retirement savings contribution credit.

For more details, you can visit the IRS website for a comprehensive list of documents required.

Oseven suggests that you gather all your documents in one location before you start filling out your taxes, including last year’s documents. It’s also vital to consider obtaining a Personal Information Protection PIN from the IRS to guard against identity theft.

Updates on Deductions

The standard deduction for single taxpayers this year is set at $15,750, while for married couples filing jointly, it’s $31,500. Heads of household will have a standard deduction of $23,625.

The state and local tax deduction cap has increased from $10,000 to $40,000, a change that positively impacts taxpayers in states with higher income taxes like California, New York, and New Jersey.

Hall, a CPA and CEO of the National Association of Self-Employed Workers, highlights that this is quite beneficial for taxpayers in high-tax states. Alternatively, those who haven’t itemized SALT deductions before might reconsider this year, considering factors like property taxes and charitable donations.

New Tax Breaks

The notion of “no tax on tips” is somewhat misleading, as only specific tips qualify and come with income limits. “It can be cash or electronic, but it must be voluntary,” Burgos explains. The deduction caps at $2,500 annually and begins to phase out for modified adjusted gross income over $150,000 for individuals and $300,000 for couples.

To claim this benefit, you’ll need to complete a new form, Schedule 1-A.

Finding Resources

This year, the IRS Direct File option for free electronic filing won’t be available. For those earning $89,000 or less, IRS Free File provides free guided tax preparation through various partners like TaxAct and FreeTaxUSA.

Besides TurboTax and H&R Block, individuals can also consult certified public accountants for professional help. The IRS has a taxpayer directory available nationwide.

Moreover, the IRS supports programs offering free tax help, particularly for individuals making less than $69,000 or seniors over 60. The IRS has a dedicated website for locating organizations that provide these assistance programs.

Common Mistakes to Avoid

Many individuals worry about IRS audits if they slip up. To steer clear of frequent mistakes, it’s essential to:

• Double-check the name on your Social Security card.
• Ensure you obtain tax documents even if you’ve opted for online statements.
• Report all sources of income accurately.

If there are inconsistencies in your tax documents, the IRS may require additional verification.

Understanding the Child Tax Credit

The tax credit currently stands at $2,200 per child, with $1,700 being refundable. To qualify for the Additional Child Tax Credit, you need to earn a minimum of $2,500 within the tax year. Full eligibility applies to those earning $200,000 or less, or $400,000 for joint filers, but some may only qualify for a partial credit.

Changes in Refunds

Beginning in September, the IRS started eliminating paper tax refund checks. If you expect a refund, direct deposit is recommended for efficiency.

Staying Vigilant Against Fraud

Tax season often attracts scams, ranging from phone calls to emails. The IRS typically doesn’t contact taxpayers through these avenues, so if something seems off, it’s wise to question it. If your tax professional predicts a larger refund than in prior years, that could be a warning sign.

Always keep a copy of your tax return for future reference, as Oseven advises retaining records for about five to seven years in case of an audit.