Filling the Gaps
US consumers got some welcome news last week, when the December CPI showed prices shrank 0.1% from November. Still, year-over-year inflation checked in at 6.5%, highlighting just how much Americans’ spending power diminished in 2022.
A survey from Credit Karma (INTU) suggests tax refunds are increasingly important in this inflationary environment, with 30% of Americans admitting they’ll rely on the extra cash to help make ends meet. Younger respondents were even more likely to say that’s the case, with 40% of Gen Zers and 46% of millennials saying the payment is essential to their finances.
3 in 4 Ready for a Refund
Credit Karma says close to 75% of Americans expect a tax refund in 2023. It will also represent many employees’ most significant one-time payment of the year. Amid persistent inflation, that additional cash can help pay for home repairs, childrens’ activities, family vacations, or simply padding the emergency fund.
On the downside, the IRS has issued warnings that 2023 refunds may be smaller than what people expect. That’s because many pandemic-era tax breaks have expired, including the larger child tax credit and more generous charitable deductions. For reference, last year’s average refund was almost 14% higher than in 2021, as of late October.
Speeding Things Up
The easiest way to expedite the tax process – and receive your return, if you’re entitled to one – is to file electronically. Not only does it take longer for mailed documents to be processed, but there’s also the inherent risk of it getting delayed, or even lost.
The IRS typically issues refunds within 21 days, but if you send in a paper return, expect it to take longer. Choosing direct deposit for your refund is also advisable for the same reasons.
Finally, double check what you send in. An incorrect Social Security number, inconsistent data across forms, or other errors made on returns are one of the most common reasons for delays. You should also file your return as soon as possible in order to speed things up: tax season opens for individual filers this coming Monday, January 23.
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Top tax pros reveal their top tax tips
It’s safe to say that millions of Americans are breathing a sigh of relief now that the IRS has pushed back the deadline to file your 2020 taxes from April 15 to May 17.
But you might not want to celebrate just yet, as there is a major downside to the extension. Fraudsters who attempt to take advantage of Americans on Tax Day now have even more time to try to separate you from your hard-earned income.
To help ensure you don’t fall into any financial traps this tax season, we asked some industry experts to weigh in on ways to stay safe when filing your tax return. From spotting scams to concerns over stimulus repayments, these tips can help you avoid any unnecessary headache on Tax Day.
DepositPhotos.com
Phishing, check and phone scams are not new. But what is new is how fraudsters are applying these scams creatively to our times. For instance, it’s known that fraudsters typically send fake tax refund checks. They follow this by a written notice claiming that they sent you a higher amount than intended and that you’ll need to send them a portion of the money back. But what we’re seeing now is that they’re sending these as a form of fake stimulus checks.
The best way to detect a tax scam is by remembering that the IRS will not contact you by phone, text or social media. If you receive a written notice in the mail, verify that it’s actually coming from the IRS. Letters impersonating the IRS will often contain fake contact numbers, so don’t contact the numbers on the letter. Instead, visit the IRS website and contact them that way.
One of the best ways to stay ahead of fraudsters is to file your taxes early. You’ll not only avoid potential tax-related identity theft but also long lines at the tax accountant’s office. Filing early is especially important if you know you’ve already fallen victim to identity theft.
Many Americans are worried about having to pay back the money they’ve received from stimulus checks once they file taxes. However, this isn’t true. You’ll need to report the money you received, but the IRS states that “there is no provision in the law requiring repayment.
-Alexa Serrano, CAMS, Banking Editor at Finder.com
DepositPhotos.com
In 2020, scams intensified due to coronavirus tax relief. According to the most recent IRS “Dirty Dozen” list, an annual list of the most popular tax scams, some of the most notable include:
- Phishing – A scammer sends emails, letters, or text messages and impersonates the IRS with the goal to steal taxpayer personal information. They may also create dummy IRS websites with the same goal.
- Threatening Phone Calls – A scammer calls claiming to be with the IRS and threatens arrest or deportation if the victim doesn’t pay a fake tax bill.
- Refund Theft – This is a form of identity theft. A scammer files false tax returns under a victim’s name or diverts refunds to wrong addresses and bank accounts.
- Unscrupulous Return Preparers – These scammers will refuse to sign the return (ghost preparers), ask the taxpayer to sign a blank return, or promise a large refund before looking at taxpayer records.
There are so many factors that can lower or zero out a tax refund. It depends on your tax situation. Contrary to popular opinion, it’s not ideal to have a large tax refund.
When you withhold too much in taxes, you’re giving the IRS an interest free loan, which means less money in your pocket throughout the year. Ideally, your goal should be to get as close to zero taxes owed or paid as possible.
-Melanie Bledsoe, CPA at Bledsoe Consulting Services
DepositPhotos.com
File your taxes electronically if possible and have your refund directly deposited instead of taking a paper check. If you owe taxes, pay your taxes on the IRS Direct Paysite so that you can keep a record of them having your payment on time.
Also, if you are hiring a tax professional, make sure that they are using an encrypted/secure portal to transmit your tax documents as these documents should not be freely exchanged over email since the tax documents contain sensitive and private information.
The stimulus checks will have some impact. If you did not get a stimulus check, but your income falls under the threshold ($75K and under if you’re single, $150K and under if you’re married), you can still receive those stimulus payments as credits, which is refundable.
The credit can be used to increase your refund or reduce your tax liability. If you already received the stimulus payment, you will not be taxed on your tax return at all; however, you have to report the amounts received.
-Eric Pierre, CPA, Chief Executive Officer, Owner, and Principal at Pierre
Depositphotos
These tax preparers will end up getting more money from you if you allow them. Ensure that the tax preparer you’re in contact with has an IRS Preparer Tax Identification Number or PTIN. Do your due diligence by asking for their qualifications or credentials before transacting with any tax preparer. Lastly, do not sign a blank return or give any information if you aren’t entirely sure of who you’re dealing with.
-Paul Sundin,CPA and tax strategist at Emparion
The IRS will always mail you a bill if you actually owe taxes. You will also have an opportunity to defend yourself and appeal the amount you owe. Anyone who contacts with a demand for immediate payment via debit card, gift card, or wire payment is a fraudster.
A smaller refund can occur when you have income that is not subject to withholding such as self-employment income, interest, dividends and capital gains. It can also occur if you have reduced your withholding by making adjustments to your W-4.
-Eric Bronnenkant, CPA, CFP and Head of Tax at Betterment
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If you already received both stimulus checks, then your tax return shouldn’t be affected. However, if you had some substantial changes in 2020 (reduced income, having a baby, etc.) then consider filing as soon as possible to receive the highest amount you can when they send the third stimulus check.
I recommend using your tax refund to pay off debt, boost your savings or invest in your future. Depending on the amount you receive, you can use that money to really free up your finances so you’re in a better place in the months to come. 2020 was a difficult year for most people, so this is a great opportunity to pay off high interest debts or replenish your emergency fund.
– Jacob Dayan, CEO and Co-founder of Community Tax and Finance Pal
Kameleon007/istockphoto
Since the IRS communicates through the mail, it can be difficult to discern what is and isn’t a scam. Fortunately, few hackers have the skills to successfully imitate the IRS. If you’re issued a letter, it’s a good idea to review how the sender requests payment.
The IRS only accepts online payment through their official website and their electronic federal tax payment system. If the sender requests money through another site, it’s a giant red flag.
-Kristen Bolig, Founder at SecurityNerd
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originally appeared on Finder.comand was
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