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Common Tax Filing Errors – Did You Know? (3/3)

Every year, many taxpayers may make mistakes on their returns that cause IRS processing delays. Some common errors can also result in paying too much or too little tax.

The following mistakes often cause filers to pay the wrong amount of tax:

Incorrectly Figuring Credits or Deductions:
Once you determine that you qualify for a tax deduction or credit, you must carefully compute the amount that you can claim. Many taxpayers fail to take into account income limitations (including the calculations that must be made if your income falls within a “phase-out” range) and other restrictions. Others claim less than they could, or miss out on deductions and credits entirely by not filing the required forms and schedules.

Expired ITIN:
Those who file their IRS returns using individual tax identification numbers (ITINs) must keep in mind that ITINs periodically expire. Although a return filed with an expired ITIN may be accepted, the IRS generally will not allow any of the exemptions or tax credits claimed. The taxpayer must renew their ITIN in order to obtain the full refund that they are owed.

To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

Reminder: First Retirement Required Minimum Distributions Deadline

If you reached 72 years of age in 2022 and have an IRA (other than a Roth), or a 401(k) or similar retirement plan, then you likely need to withdraw funds from that account by April 1. In general, taxpayers with these retirement plans must begin taking annual withdrawals, called required minimum distributions (RMDs), once they reach a specified age.

This special April 1 deadline applies only to those taking their FIRST retirement account RMD. The normal deadline for RMDs is December 31 of the year that the RMD applies to. This means that taxpayers who turned 72 in 2022 and take their first RMD by April 1 will generally need to take a second, separate RMD for 2023 by December 31.

The age threshold of 72 for 2022 RMDs generally applies for traditional, SEP and SIMPLE IRAs, as well as for many workplace retirement plans such as 401(k), 403(b) and 457(b) plans. However, if you still work for the organization where you set up your 401(k) or similar plan, you may be able to delay your first RMD until April 1 of the year after you retire. Roth IRAs generally do not have RMDs, unless the account was inherited.

Your retirement account manager can help you figure the amount of your first RMD, and ensure that the transaction is completed by the deadline. In general, RMDs are taxable income.

Common Tax Filing Errors – Did You Know? (2/3)

Every year, many taxpayers may make mistakes on their returns that cause IRS processing delays. Some common errors may also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment.

The following mistakes can cause filers to pay the wrong amount of tax:

Math Mistakes:
Even mathematicians sometimes make errors in simple addition and subtraction, and some of the calculations required for 1040 schedules can be complicated. Thoroughly double-check every bit of math on your return.

Incorrect Filing Status (Single, Married Filing Jointly, etc.):
The IRS will not accept a return showing a filing status that you are not eligible to claim. If you qualify for more than one status (for example, filing jointly or separately if you are married), the option you choose may significantly change your tax.

To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

Common Tax Filing Errors – Did You Know? (1/3)

Every year, many taxpayers may make mistakes on their returns that cause IRS processing delays. Some common errors may also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment.

The following mistakes may not change your tax, but they can cause processing problems. The IRS may even withhold your refund until the errors are corrected.

Missing or Inaccurate Social Security Number (SSN):
Even when filing electronically, many people mistype their SSNs and do not catch the error. If the SSN on your return does not match the number on your Social Security card, the IRS may not be able to process your return.

Misspelled Name:
Take your time when filling in every blank on your return, even your name. A misspelling or illegible writing can prevent proper processing.

Incorrect Bank Account or Routing Number:
Getting your return filed electronically and requesting direct deposit is the fastest way to get your refund, IF you provide accurate information. An error in your banking info can cause big headaches.

Missing Signature:
Remember that in most cases, couples filing jointly must both sign their return.

To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

False Tax Returns Scams – Did You Know?

IRS and state tax officials recently issued warnings about misleading posts on social media encouraging people to file bogus returns. Typically, the scammers claim that by following their instructions, taxpayers can receive a large tax refund. These claims are false and dangerous.

Some scammers urge people to use tax software to fill out a Form W-2 (Wage and Tax Statement) with false information, such as fake employers or high amounts of tax withheld. A similar scam involves completing Schedule H (Household Employment Taxes) with made-up figures related to paying household employees. In both cases, the scammers state that people can get a tax refund by electronically filing these fraudulent forms.

Alternatively, a scammer may encourage taxpayers to file Form 7202 to get a tax credit for sick or family leave. This special credit was only available in 2020 and 2021, and only for self-employed individuals. Employees could never claim it, and no one may claim it for tax year 2022.

The IRS urges all taxpayers not to believe these scam posts and messages, and to only file tax forms with true and accurate information. Filing a bogus return could trigger IRS penalties including up to a $5,000 fine, and potentially criminal charges.

Refund Amounts - Did You Know?

If your refund amount is different than stated on the filed tax return, part or all of your refund may have been used to pay off (offset) past-due federal tax, student loans, state income tax or other past-due debts.

You'll receive a notice from the IRS if such an offset occurs that will show the original tax refund amount, the offset amount, as well as the name, address and telephone number of the agency receiving the payment.

If you haven't received your refund yet, you may be able to check the status using the IRS' "Where's my Refund?" tool: https://www.irs.gov/refunds.

Credit for Other Dependents – Did You Know?

If you have dependents who do not meet the age or other eligibility requirements for the Child Tax Credit (CTC), you may qualify for the Credit for Other Dependents. This credit may be claimed for dependents of any age, including children, parents and certain other relatives, along with some non-related dependents who live with you. Each dependent must be a U.S. citizen, national or permanent resident, and must have either a Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).

The maximum credit amount is $500 per qualifying dependent for taxpayers with an adjusted gross income (AGI) of $400,000 or below for joint filers, or $200,000 or below for all others. The credit phases out at higher income levels.

If you qualify, you may claim the Credit for Other Dependents in addition to the Child and Dependent Care Credit and Earned Income Tax Credit (EITC). A tax professional can help you determine which credits for dependents you are eligible for, and how to best combine credits to reduce your tax or increase your refund.

Earned Income Tax Credit – Did You Know?

Many Americans may qualify for the Earned Income Tax Credit (EITC), but do not claim it because they do not know it is available. The EITC is a fully refundable tax credit, which means that eligible filers can use it to get a tax refund even if they owe no tax.

To qualify for the credit, your 2022 income must include earned income, such as employee pay or earnings from self-employment activities like freelance or gig economy work. You also cannot have more than $10,300 in investment income, such as interest or dividends.

In addition, your adjusted gross income (AGI) for 2022 must be below the limit set by the IRS for your filing status and number of qualifying dependents. For married taxpayers who file joint returns, the 2022 AGI limit ranges from $22,610 (no dependents) to $59,187 (three or more qualifying dependents). For those who file under single, head of household or surviving spouse status, the AGI limit ranges from $16,480 (no dependents) to $53,057 (three or more qualifying dependents).

In order to claim the EITC, you must file a 2022 federal tax return, even if you would not ordinarily be required to file based on your income. A tax professional can help you file your return electronically, and set up direct deposit to get your refund as quickly as possible.

Tips for Filing an Accurate 2022 Return (2/2)

Here are some additional key points to keep in mind as you prepare your 2022 tax returns. To avoid processing delays and potential IRS penalties, taxpayers must report all forms of potentially taxable income. In addition to wages or a salary that you receive as an employee, make sure to accurately report any income you had from:

- Business activities, including selling goods online, independent contract work, side gigs or other forms of self-employment
- Interest, dividends, gains from digital assets (cryptocurrency, non-fungible tokens, stablecoins) transactions or other investment returns
- Seasonal or other temporary or part-time work
- Prizes, awards, bonuses or gambling winnings

A tax professional can help you properly report all your income, and file your return electronically for faster processing.

IRS Clarifies Which 2022 State Tax Payments Are Non-Taxable – Did You Know?

Many states issued special tax rebates or other relief payments in 2022 and until now, it has been unclear whether recipients of these payments had to report them as taxable income on their 2022 federal tax returns.

According to the IRS, certain payments issued by 17 state governments may qualify as disaster relief or general welfare payments, which taxpayers may exclude from their income. Therefore, those who received these special rebates or relief payments generally do not have to report the payments on their federal tax returns as taxable income. The 17 states are: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. The IRS has published a list of the specific payments covered by this rule (link below).

Meanwhile, taxpayers in Georgia, Massachusetts, South Carolina and Virginia who received certain state tax payments in 2022 may be able to exclude these payments from their income if they were a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

A tax professional can help you determine whether any state tax payments you received in 2022 may be taxable, and if so, how to properly report them on your tax return.

List of State Tax Payments Covered: https://www.irs.gov/newsroom/state-payments.

Tips for Filing an Accurate 2022 Return (1/2)

The first step toward completing an accurate return and claiming every deduction and credit that you are entitled to is assembling critical records and documents. These include:

- Earnings statements like W-2s, 1099s and/or 1098s
- Social Security or other taxpayer ID numbers for all people listed on your return
- Any IRS letters you received in 2022 about deduction or credit amounts, adjustments made to your past tax returns, etc.
- Form 1095-A (Health Insurance Marketplace Statement), if you claim the Affordable Care Act Premium Tax Credit
- Form 1098-T (Tuition Statement), if you claim education expense credits or deductions

In addition, having your bank account and routing numbers handy will enable you to request your refund by direct deposit. A tax professional can help you file your return electronically and set up direct deposit for the fastest possible processing.

Missing or Incorrect W-2s or 1099s – Did You Know?

When the time comes to get your taxes filed, it can be frustrating to discover that you have not received the documents you need to complete your return. This problem occurs most often with Form W-2 (Wage and Tax Statement for employees) or the various versions of Form 1099 (for earnings as an independent contractor, pension or IRA distributions, etc.).

If you have not received an anticipated W-2 or 1099, you should first contact the employer or payer to request the missing document. The same applies if a form you received contains incorrect information.

If you have received an incorrect Form 1099-G for unemployment compensation from your state employment office, contact the agency immediately. An incorrect form may indicate that a scammer collected unemployment benefits using your Social Security Number (SSN).

Benefits of Filing Early - Did You Know? (2/2)

The IRS deadline for filing 2022 tax returns is April 18, 2023 but there are multiple advantages to filing electronically as soon as possible. These advantages include:

- Faster Refund: Processing of returns by the IRS may slow down in April, as the number of returns submitted increases. For early filers who provide direct deposit information, the IRS issues most refunds within 21 days, or by as soon as February 28 for those who claim the Additional Child Tax Credit or Earned Income Tax Credit.
- No Need to Request A Filing Extension: If you start early, then even if a problem comes up like a missing wage statement or other tax document, you will have plenty of time to resolve the issue before the filing deadline.
- More Time to Request An Installment Plan: Discovering at the last minute that you owe more tax than you can pay may lead to tax problems, including IRS penalties. Filing early may give you time to properly request an installment payment arrangement with the IRS, helping to minimize penalties and interest charges.
- Easier to Get Help: If you need assistance preparing and/or filing your tax return, help will be easier to find in February or early March than during the final days before the filing deadline.

A tax professional can help you efficiently complete your tax return, and file it electronically for greater security and faster processing.

Benefits of Filing Early – Did You Know? (1/2)

The IRS deadline for filing 2022 tax returns is April 18, but there are multiple advantages to filing electronically as soon as possible. Early filing can protect you from tax-related identity theft, where a scammer files a fake tax return using your Social Security number (SSN). The IRS only accepts one electronically filed return per SSN, so if someone else files a bogus return with your number before you, you may have to file a paper return.

A tax professional can help you efficiently complete your tax return, and file it electronically for greater security and faster processing. By acting now, you can have your refund in your bank account before many taxpayers have even begun the filing process.

Reporting Digital Asset Transactions to the IRS – Did You Know?

Since 2020, the IRS has required taxpayers to answer a question about their involvement with virtual currencies on their tax returns. For tax year 2022, the IRS has replaced the term “virtual currencies” with “digital assets,” a category that includes not only cryptocurrencies and stablecoins, but also non-fungible tokens (NFTs).

Generally, you must answer “Yes” to the digital asset question if any of the following occurred in 2022:
- You received digital assets as payment for labor, goods or services.
- You traded digital assets or gave them away as gifts.
- You received digital assets as an award or reward, as a result of a hard fork, or due to mining, staking or similar activities.
- You sold a digital asset for cash, exchanged it for other (non-digital) property, or otherwise disposed of your financial interest in it.

You may generally answer “No” to the question if you simply held digital assets throughout 2022, moved digital assets between your digital wallets, or purchased digital assets for cash.

Generally, if you receive digital assets as payment for labor or services, you must report the value of the assets as employee income or, if you are self-employed, as business income. Many other transactions could result in a taxable capital gain. A tax professional can help you properly report your digital asset transactions, and figure and pay any tax due on them.

Filing Deadline for W-2 and 1099 Forms

Taxpayers who paid employees or independent contractors in 2022 are reminded to file all required payment reporting forms by January 31, 2023.

If you operate a business and pay employees, you generally must file a Form W-2 for each employee with the Social Security Administration (SSA) by January 31. You must also send each employee a copy of their W-2

January 31 is also the deadline for 1099 forms if you are required to file 1099-MISC and 1099-NEC forms.

A business tax professional can help you determine whether you need to file W-2 or 1099 forms, and may also be able to help you submit the forms electronically.

Year-End Transactions Can Change Your 2022 Tax Refund – Did You Know?

Now is the time to prepare to file your 2022 tax return, and the IRS is reminding taxpayers that certain end-of-year financial transactions might have significant tax impacts. Tax withholding from paychecks does not ordinarily take into account income sources like yearly or holiday bonuses, stock dividends, or selling real estate or other property at a profit. If you receive such income, you might end up getting a smaller tax refund than you have been anticipating, or even owing tax and penalties for underpayment.

In addition, the IRS reminds taxpayers that if they have outstanding debts like unpaid taxes from previous years, past-due child or spousal support, or overdue student loan payments, their 2022 tax refunds might be reduced by these amounts under the Treasury Offset Program (TOP).

A tax professional can help you determine the tax implications of income you received late in 2022.

Opening Date for 2023 Tax Filing Season

The IRS will begin accepting 2022 tax returns for processing on January 23, 2023. Taxpayers may file their returns before that date, but may need to wait until January 23 or later to get confirmation that the return was accepted. The filing deadline for 2022 returns is April 18, 2023.

If you have a federal tax refund coming, you can track it by using the Where's My Refund tool (link below) once the IRS has accepted your return.

To avoid processing delays, make sure that your return is complete and free from errors. A tax professional can help you file an accurate return electronically and set up direct deposit, so that your refund comes as quickly as possible.

IRS Where's My Refund? Tool: https://www.irs.gov/refunds

Quarterly Estimated Tax Payments - Reminder

If you are making quarterly estimated tax payments to the IRS, the due date for the September 1st - December 31st, 2022 quarter of year is January 17th, 2023.

For payments made using IRS Direct Pay, you can make payments until 11:45PM EST, and for payments using a credit or debit card, payments can be made up to midnight on the due date.

IRS Delays Implementation of New Form 1099-K Rules – Did You Know?

The American Rescue Plan Act (ARPA) of 2021 changed the IRS reporting rules for payments sent through third-party payment processors like PayPal and CashApp. The new rules require payment processors to send a Form 1099-K to all recipients of $600 or more in payments for goods or services during a year. These rules were to take effect beginning with tax year 2022.

However, the IRS has now announced that 2022 will be treated as a “transition year” for the ARPA provisions regarding 1099-K forms. As a result, payment processors may choose to follow the previous rules, which stated that a Form 1099-K must only be sent if a business or individual received over $20,000 in payments through more than 200 transactions. The new $600 threshold will take full effect in tax year 2023.

Therefore, if you received between $600 and $20,000 for goods or services through a payment processor in 2022, with 200 or fewer transactions, you may or may not receive a Form 1099-K. Note that this transition policy applies only to the sending of 1099-K forms. You must still report all taxable income you receive through a third-party processing platform to the IRS, regardless of whether you receive a tax form showing the income. A tax professional can help you determine which payments you received may be taxable.

Standard Mileage Rates for 2023 – Did You Know?

The IRS has updated the 2023 standard mileage rates for vehicle uses that qualify for a tax deduction. These rates apply for most passenger vehicles, including cars, vans, SUVs and pickup trucks. Here are the main mileage rates for this year:

- 65.5 cents per mile for business use of a vehicle (up 3 cents from midyear 2022)
- 22 cents per mile for certain medical purposes or moving purposes for qualified active-duty Armed Forces members (same as midyear 2022)
- 14 cents per mile for vehicle use for qualifying charitable work (unchanged)

In most cases, taxpayers who qualify to claim a vehicle expense deduction may either use the standard mileage rate or actual expenses to figure their deduction. However, if you use your car or truck for business, you generally must use the standard rate for the first year you put the vehicle in service if you want to preserve this option for future years.

A tax professional can help you determine whether the standard mileage rate or actual expenses will result in a larger deduction in your circumstances. Keep in mind that if you choose to deduct actual expenses, you will need to keep detailed records of all vehicle-related costs.

'Tis the Season for Important Tax Paperwork

Keeping your records organized will help make sure you don't miss out on valuable deductions when it is time to file. Many taxpayers will receive year-end income statements from employers, banks, stock issuers and other sources in January and early February.

The most common documents include:

- W-2 forms from your employers, showing your wages and any taxes withheld
- Forms 1099-INT and 1099-DIV showing your interest and dividend income
- Forms 1099-MISC and 1099-NEC showing gig economy and other self-employment earnings, along with rents, royalties and other miscellaneous income
- Form 1099-K from payment processing services like PayPal and CashApp if you received $600 or more in payments through one of these platforms for goods or services
- Records of virtual currency (including crypto) transactions
- Charity donation receipts
- Health Insurance statements (like Form 1095)
- Proof of qualifying educational expenses (like Form 1098-T)
- Mortgage interest statements

December 31 IRA Deadline – Did You Know?

Many taxpayers with IRAs must take a withdrawal from their accounts each year, called a required minimum distribution (RMD). In general, taxpayers who will be 72 years of age or older by the end of this year must take a 2022 RMD from their traditional, SIMPLE or SEP IRA. Holders of Roth IRAs typically do not need to take RMDs.

The deadline for most 2022 RMDs is December 31. However, a different deadline applies if you turned 72 in 2022, and will be taking your first RMD. In this case, you may take your first RMD at any time until April 1, 2023, as long as you then take your second RMD by December 31, 2023. RMDs are generally taxable in the year when you receive the money.

Failure to take an RMD by the deadline, or withdrawing an insufficient amount, may result in a 50% tax penalty on the amount that was not withdrawn as required.

Many workplace retirement plans, such as 401(k) plans, have similar RMD rules. Taxpayers who inherited any type of IRA (including Roth) may also have to take RMDs. Your IRA trustee or administrator can help you determine whether you must take a 2022 RMD and if so, the correct amount. A tax professional can help you properly report the RMD and figure any tax due on it.

Spike in Tax-related Gift Card Scams – Did You Know?

The holiday season can bring a lot of joy, but unfortunately, it also brings a new wave of scammers trying to cheat people out of their hard-earned money. Many scammers impersonate the IRS or other government agencies and demand payment in gift cards.

In one common version of the scam, a caller posing as an IRS agent threatens a person with tax and/or criminal penalties if the person does not immediately pay off a fictitious tax debt. The scammer may also send threatening text, email or voice messages with a callback number. Ultimately, the scammer demands that the person make payment by purchasing gift cards and sharing the card numbers and PINs.

If you get a call or message from anyone demanding payment in gift cards, hang up or do not reply. The IRS will never call a taxpayer to demand payment in gift cards, prepaid debit cards or wire transfers. If you have legitimate concerns about your tax situation, including back taxes you may owe, a tax professional can help you handle the problem in a safe, secure way. To help protect others, you can report possible tax scams to [email protected].

Giving Tuesday and Charitable Donations - Did You Know?

Millions of Americans will contribute to their favorite charities on Giving Tuesday (November 29), and throughout the holiday season. Charitable donations are often described as tax-deductible, but whether you can claim a deduction for your contribution depends on several factors.

First, you generally must itemize deductions on your tax return to claim a deduction for charitable donations. Therefore, your donation will not be deductible if you use the standard deduction. Note that the special rules that allowed taxpayers who did not itemize to deduct certain monetary donations in 2020 and 2021 have now expired. A tax professional can help you determine whether itemizing deductions would be advantageous for you.

If you do itemize deductions, you may generally deduct donations of money or property to any eligible tax-exempt charity. If you are unsure whether an organization qualifies to receive tax-deductible donations, the IRS Tax-Exempt Organization Search tool (link below) can help.

Tax-Exempt Organization Search: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

Potentially Taxable Events – Did You Know?

In addition to traditional income sources like employee wages and business profits, there are a number of other activities and transactions that the IRS classifies as potentially taxable. It is important to consider all of these “taxable events” for your tax return.

The most commonly overlooked taxable events include:

- Investment income, including receiving stock dividends or cashing in bonds
- Converting a traditional IRA to a Roth IRA
- Forgiveness (discharge) of a loan or other debt, including student loans
- Sale of assets such as vehicles, musical instruments, or a home at a gain (that is, for more than you paid to purchase the assets)
- Sale or exchange of cryptocurrency (like Bitcoin), or making purchases with cryptocurrency
- Withdrawing funds from a retirement plan (or from the cash value of a life insurance policy if you withdraw more than you have paid in premiums)
- Gifts and inheritances

A tax professional can advise you about which events in your life may have tax implications, and how to properly report those events. For example, in some cases, you may only need to declare the event to the IRS if the amount of money involved exceeds a minimum threshold, known as an “exclusion.”

Charitable Contributions Can Reduce Tax on IRA Distributions – Did You Know?

In general, distributions from a traditional IRA are taxable income. However, if you have a traditional IRA and are age 70 1/2 or older, you may have the option of making tax-free charitable contributions through your IRA. A qualified charitable distribution (QCD) is a contribution made directly to an eligible charity from IRA funds. The account trustee, such as a bank or investment broker, must arrange and execute the contribution.

A QCD counts toward your annual required minimum distribution (RMD). Therefore, if you do not need funds from your traditional IRA this year, making a QCD may enable you to satisfy RMD rules without owing tax on the distribution. You must report QCDs on your tax return on the line for IRA distributions, but you may usually report the taxable portion of a QCD as zero.

Limitations on the nontaxable amount of a QCD may exist, depending on factors like your recent IRA contribution amounts. A tax professional can help you verify your eligibility to make a tax-free QCD, and properly arrange and report the transaction to comply with all IRS rules.