Consumers continued to be squeezed by the unrelenting rise in prices, the highest in over a generation and could face a recession in the next year. and their woes have been compounded by the political bickering at Washington that put a stop to all forms of federal stimulus checks in 2022.
Americans also do not even have a fat tax refund or a stimulus check to look forward to in 2023, unlike in the past two years following the pandemic. it is one more reason why it is vital to pay close attention to your income tax return to ensure that you get the maximum tax refund you can, say financial experts.
The Internal Revenue Service has already warned on Tuesday that the tax year 2022 income tax refunds will be smaller than in the previous two years. They attribute this to the lack of any federal stimulus check in 2022.
It may also be noted that a pandemic-era exception in both 2020 and 2021 allowed income tax filers taking the standard deduction to claim a tax deduction of a maximum of $300 for cash donations paid to charity has not been extended further. Thus the only way to write off gifts in this financial year would be to itemize gifts to charity.
The End Of Stimulsucheck Tax Refunds Will Be Alarming For Millions Of Americans
The change this year will be definitely troubling for millions of Americans who have come to rely on tax refunds for considerable purchases, investments, and savings, or even paying off their debts.
In 2022, close to 50% of income tax filers revealed that they were dependent on their refunds and were expecting to spend them on something of significance. But tax and financial experts have assured that taxpayers should not be unduly worried as there are still many tax credits, benefits, deductions, and other ways to close down the tax amount that filers owe and even get a significant amount as a tax refund.
Going In For Some Basic Tax Preparation In Advance
The basic step that will save you a lot of grief later and even bring in some money as a refund, even if it is related to stimulus checks, from the tax authorities is to prepare well in advance for your tax filing. It does not have to be a super organized effort with records valet and a file cabinet. A simple method of segregating receipts and documents in large envelopes, shoeboxes, and files will work as well. It is a matter of simply being better organized to make tax filing and claims more accurate and less stressful.
Information should ideally be organized into 4 simple sections. They are income items, credit and deduction items, life changes, and last year’s income tax returns.
The categories of income are of principal concern to taxpayers and include capital gain, ordinary income, and tax-exempt income. No income is exempt from income tax unless explicitly exempted by tax authorities including stimulus checks.
For most Americans, income simply means their total earnings in the form of wages and salaries, pension distributions, return on investments, and any other receipts that have not been specifically exempted.
For businesses, income means the revenues from selling products, services, and any dividend and interest they have received concerning the reserves related to their business or their cash accounts.
Life changes usually indicate something significant happening in your life that could affect your taxes. you need to talk to a tax professional to make sure you handle the changed scenario in the right manner and get all the tax benefits you are entitled to after this change.
Changes may include joining college, starting a business, losing a job, selling or buying a house, having a child, getting married, retiring or aging, and the death of a near one.
It Is Vital To Keep Your Tax Records From The Past Including Records Of Stimulus Check Income
Referring to the previous year’s income tax return is vital and there is a major reason you need the previous year’s tax returns while filing your present year’s returns.
You could get a letter from the IRS asking you for information about your taxable income for the past two years. you would then have to produce your tax documents including your tax returns, 1099 forms, W-2 forms, and other business-linked receipts. Unfortunately, most people dispose of such documents within a year. this could complicate future strategies for a tax audit.
The IRS is authorized to conduct an audit of your tax records for a certain period. So if you do not have the papers o back your claim in case the IRS conducts an audit, you would find it impossible to establish your claim that the IRS has erred.
This problem has been compounded in the past two years as the IRS sent out millions of stimulus checks in several rounds and other forms of stimulus checks like the expanded Child Tax Credit payments.
Some Important Tax Changes For 2023
People who are into side hustles and part-time work, or even those who sell occasional goods on eBay or Etsy will have to be vigilant for Form 1099-K. everyone who sells $600 or more in a calendar year or goods or services and accepts payments through 3rd-party networks including PayPal, Venmo, or credit or debit cards, will receive the 1099-K with such transactions.
You would need to report such transactions or you could be facing an automatic notice from the IRS or even a notice for audit. This change came after the passage of the American Rescue Plan Act, of 2021. Earlier the reporting threshold for taxpayers was over 200 transactions with an aggregate worth of more than $20,000.
Gifts given to charity can also be written off only if you have itemized the deductions. This again is in contrast with the rule in the previous two years when filers claiming the standard deduction could claim a tax deduction of up to $300 for cash donations given in charity.
The Right Time To File Taxes
The advice of every accountant and financial planner is to file taxes as early as possible, even as early as January every year once tax season opens. With 75% of taxpayers getting a refund each year, filing early will help you get the refunds early, and there could still be some stimulus check refund waiting for you.
Your stimulus check refund might also be stolen by someone filing a fake tax return to steal your tax refund if you file late.