If you’re one of those procrastinators who still hasn’t filed your taxes, you’re not alone. About one-third of Americans wait until the very last minute.
A survey from IPX 1031 finds the most common reason this year for the delay is the belief that if there’s no refund, there’s no rush to file. Nearly one-third of people surveyed use that excuse, while 25% say filing is too stressful and another 20% say they want to make sure they’re filing correctly.
Waiting to file because you don’t think you’ll get a refund is a big mistake. You may qualify for credits and deductions that you didn’t realize are available to you, tax experts say.
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“Many small business owners forget about tax breaks for their vehicle and home office,” said Eric Pierre, a CPA and CEO of Pierre Accounting in Austin, Texas. “You may miss a deduction that could cause you to get a large refund.”
What’s more, “if you owe money, you need to at least file the return and set up a payment plan, or send some money to the IRS to reduce interest and penalties,” he said.
The average tax refund is actually bigger than it was last year. As of March 25, nearly 58 million tax refunds had been issued in the 2022 filing season and the average payment was $3,263, which is about $400 more than the average refund for the 2021 filing season. Also, most tax experts say, the earlier you file, the faster you’ll get your refund — as long as you file electronically and request direct deposit.
With the tax-filing deadline fast approaching, here are some “do’s” and “don’ts” you need to know.
DO file your tax return on time
The good news is you have extra time to file your taxes this year. The federal tax-filing deadline is Monday, April 18 for most taxpayers, not the traditional April 15 date. So, you have three additional days. The later date is due to the Emancipation Day holiday in the District of Columbia. By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way federal holidays do.
And, taxpayers in Maine or Massachusetts have until April 19 to file their returns due to the Patriots’ Day holiday in those states. April 18 is the filing deadline for most state tax returns, too, but some states (Delaware, Iowa, Louisiana, Maine, Massachusetts, Virginia) have different deadlines. Make sure to double-check your state’s tax filing deadline.
DO review Covid relief tax breaks
The IRS says it’s seeing a number of common errors from taxpayers claiming incorrect amounts for their Recovery Rebate Credit and Advance Child Tax Credits. If you qualified for the third round of Economic Impact Payments, issued last year, but didn’t get one, or didn’t get the full amount, you may be eligible to claim the Recovery Rebate Credit. The IRS should have sent you a letter indicating the amount. Use that information to fill out your return.
You should also refer to an IRS letter indicating the amount of your Advance Child Tax Credit payment when you prepare your return.
“Some are forgetting to include the advance child care credit that they already received during 2021 and attempting to get the entire tax credit with the filing of their tax returns,” said Genevia Fulbright, a CPA and president of Fulbright & Fulbright in Durham, North Carolina. If you do that, “the IRS will make an adjustment and the refund will be lower or you might actually owe money depending on the tax situation,” she said.
If you believe there is an error in the credit amount in those letters, contact the IRS before filing.
Also, like last year, the IRS will let you claim a deduction of up to $300 (or up to $600 for married couples filing jointly) for cash contributions made to certain qualifying charitable organizations in 2021, even if you claim the standard deduction. And if you itemize, you can claim a deduction for charitable contributions up to 100% of your adjusted gross income.
DO report all taxable income
Make sure you have all documents related to your taxable income on hand before starting to fill out your return. You may have had multiple jobs and several W-2 or 1099-MISC forms reporting your wages and/or self-employment income. Include them all.
“Sometimes people have interest-bearing accounts they forget about and don’t file Form 1099-INT, or they forget they worked at jobs and leave off W-2s,” said Sheneya Wilson, a CPA and chief executive of Fola Financial in New York. “It’s very important for them to perform a proper assessment of their financial year.”
Don’t forget to include unemployment compensation, too. A special law allowed taxpayers to exclude unemployment compensation from taxes in 2020, but it was only for that year. Unemployment income is generally taxable and should be included on your return.
DON’T forget to check that bitcoin box
Don’t leave the boxes blank on the front of your return where it asks about virtual currency. Be sure to check “Yes” or “No” to the question that asks whether at any time during 2021, you received, sold, exchanged or disposed of any financial interest in any virtual currency. If you don’t, that could be a big red flag to the IRS.
DON’T fail to file because you don’t have the funds
Many people don’t file a tax return because they say they don’t have the money to pay the tax they owe. That’s a major mistake that can cost you a lot of money. The penalty for failing to file a return is 5% of the unpaid taxes for each month that your return is late, up to 25% of your unpaid taxes.
And, if you fail to pay the tax you owe by the April deadline, you’ll have to pay 0.5% of the unpaid taxes for each month that the return is late, up to 25% of your unpaid taxes.
So, pay what you think you’ll owe by April 18. If you’re afraid of receiving a tax bill you know you can’t afford right now, consider applying for a payment plan. And if you don’t think you can finish your return in time, request an extension by April 18 and you won’t have to submit your return for six months — or until Oct. 17.
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