Tag: taxseason

Taxes 2022: IRS Says This Year ‘Taxpayers are Getting Our Message’

An estimated 160 million tax returns are expected to be filed this year, according to the IRS, and so far, the tax season has been running smoothly.

The tax agency has processed 6.6% more returns compared with a year ago, though it has received 2.1% fewer returns so far from taxpayers.

And according to Ken Corbin, wage and investment division commissioner and chief taxpayer experience officer for the IRS, the tax agency is well on its way to improve taxpayers’ experience for the 2023 tax year.

“So far we’ve received over 91 million individual returns this year and we’ve processed 89 million returns,” Corbin told Yahoo Finance Live. “What’s great about that is that we’re seeing that more taxpayers are getting our message. We’ve seen about a 96% electronic filing rate, which is outstanding.”

Processed returns

The IRS is still grappling with an unprecedented paper backlog of millions of unprocessed returns – some dating back to last year.

As of March 31, the tax agency had 2.7 million unprocessed individual tax returns dating back to 2021 and 2.3 million unprocessed returns from the calendar year 2022. Under normal circumstances, the IRS has a backlog of 1 million unprocessed returns entering a filing season.

To reduce the chances of further delays, the IRS urged taxpayers to electronically file their returns this year. The agency has also doubled down on measures to hire and reassign workers to get through the pile of unprocessed paper returns.

The IRS also redesigned its online website IRS.gov to make it more user-friendly so taxpayers could navigate and find information easily. The tax agency also added a new individual account that allows taxpayers to keep track of their personal information and tax status.

“The pandemic has really given us an opportunity to sit back and think about the journeys of the taxpayer as they interact with the IRS,” Corbin said. “It’s an opportunity to be innovative but to also bring cohesion around how we administer the taxes… we’ve introduced new technology like voice and chat bots on our phone as well as IRS.gov. And we’ve implemented taxpayer experience days, where taxpayers can come into our offices and talk with us [on the weekend].”

File electronically

If you have yet to file your tax return this season, and want to avoid any substantial delays with your refund, you should file electronically.

National Taxpayer Advocate Erin Collins recently told Yahoo Money that filing a paper return could delay your tax processing for 10 months or longer. This can be a real set back if you’re waiting on a refund or the remaining portion – if not the complete amount — of your Child Tax Credit.

“Number one, file electronically and use direct deposit – there are lots of options out there, including our IRS free-file program,” said Corbin.

Folks that received an advanced CTC payment last year or collected unemployment were encouraged to use the IRS.gov personal account to check how much they received in aid before filing, so their returns wouldn’t be held for a manual review, said the IRS.

Take advantage of IRS resources

The IRS has implemented a variety of programs to help individuals file their taxes as zero cost.

“More taxpayers seem to be seeking help in filing their returns, whether they are going to a tax professional or even using our Volunteer Income Tax Assistance program, where we offer free tax prep for taxpayers,” said Corbin.

VITA programs are run each year by IRS-certified volunteers to ensure lower-income households can get the tax preparation and services they need to file accurate tax returns and get their refund. VITA resources can also help non-filers claim tax credits they may be eligible for, including the Earned Income Tax Credit, the Child Tax Credit, and any stimulus checks they may not have received.

Still, the IRS recognizes that there is still work to be done to avoid the jammed paper backlogs it is currently contending with.

“We have to be sensitive to those taxpayers whose returns have not been processed – it’s critical to them,” Corbin said. “There are refunds in those returns and there are other reasons why people need those returns processed either for financial aid for college students or to obtain a loan. What this means for these taxpayers is that their experience has been a challenging one.

But at the IRS, we’re all hands on deck. We have a plan so that we can get better than healthy by the time we get to the 2023 season.”Tax day is right around the corner and if you haven’t filed yet, putting together your return in a rush may come back to bite you.

“You should never rush through the process of having your tax return prepared because you want to make sure that your tax return is complete and accurate,” Daniel Geltrude, founder of Geltrude & Company, recently told Yahoo Finance Live (video above). “The last thing that you want is you file your tax return in a rush, and then in 30 days you get a nice letter from the IRS saying there was a problem with your tax return.”

If you need more time to file your tax return, you can request for an extension that gives you until October 15 to file your taxes. But you must file your extension request by the April 18 deadline.

If you owe the IRS and need extra time to file your return and to pay, then you need to request an extension to file and an extension to pay. If you owe and only request an extension to file, you may face penalties and interest on the amount you owe.

If you are filing by mail and are waiting until the deadline to pay, a postmark alone may not be sufficient.

“​​As long as the envelope is properly stamped by the due date — April 18th — sending your check through the mail at that last moment you’re okay,” Geltrude said, noting, “you should also do that by certified receipt to make sure that you can prove timely filing and timely payment.”

Working remotely and the home-office deduction

Due to the pandemic, many people worked from home. Unfortunately, working remotely from home doesn’t mean you qualify for the home-office deduction.

“If you are an employee getting a W-2 for the work that you do, you are not entitled to take those home office deductions as an employee,” Geltrude said. “You need to be an independent contractor having your own business to take all of those expenses related to your business activity as a deduction against your income.”

By: Gabriella Cruz-Martinez

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

Source: Taxes 2022: IRS says this year ‘taxpayers are getting our message’

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Rich Americans Who Were Warned on Taxes Hunt for Ways Around Them

For wealthy Americans worried about higher taxes, the future is looking bleaker. It’s all but inevitable that the Biden administration, as well as lawmakers at the state level, will target millionaires and billionaires for more levies. The new reality could feel harsh for investors who got used to paying a top rate of 23.8% on their capital gains, an amount they can lower further with many of the deductions, incentives and accounting tricks offered by the U.S. tax code.

Advisers, of course, will certainly try to help their clients adapt to whatever the new rules may be. “We’re not going to evade taxes, but we’re going to avoid them and defer them as much as we can,” Bill Schwartz, managing director at Wealthspire Advisors, said in an interview. “We’re only beginning to explore. Give us a year or two and we’ll find ways around things.”

Wealthy Americans were amply warned that President Biden and Democrats in Congress want to raise their taxes. But what has surprised at least some of them is the size and speed of proposals.

On Thursday, Bloomberg reported that Biden plans to nearly double taxes on capital gains, pushing the top rate to 43.4% for those earning $1 million or more. If passed by the Democrats’ narrow majorities in Congress, it would fulfill a campaign pledge “to reward work, not just wealth” by bringing the tax on investors up around the level paid on ordinary wage income.

Some members of the top 0.1% expressed anger, denial and grief. The stock market, which has steadily risen since Biden won the election, reacted with dismay, with U.S. equities falling the most in five weeks on Thursday.

“Obviously, this is eye popping,” John Norris, chief economist at Oakworth Capital Bank, said in a note sent to clients. He calmed clients with the suggestion that “it likely won’t come to pass, at least at these levels,” adding: “Remember, elected officials on both sides of the aisle have wealthy donors who probably won’t like this very much.”

Epic Shift

Biden is signaling an epic shift in tax policy: For more than a generation, presidents and Congresses have rolled out the red carpet for investors. When not cutting taxes on capital gains and dividends, lawmakers introduced incentives designed to encourage investment in targeted areas.

They were following both campaign contributors and economic orthodoxy, which insisted that low taxes encourages the sort of investment that boosts economic growth. But then a new generation of economists pointed out that the real-world evidence for those theories was flimsy.

Tax cuts don’t seem to have juiced economic growth in the U.S. over the last few decades, even as they coincided with soaring income and wealthy inequality. Incentives programs — such as Opportunity Zones, a bipartisan idea to steer money to low-income areas implemented by President Donald Trump — have been criticized for rewarding investment that would have taken place anyway.

“Nobody has a crystal ball,” James Bertles, managing director at Tiedemann Advisors in Palm Beach, Florida, said in an interview. However, after the federal government spent trillions of dollars on Covid-19 relief, “most people think taxes are going to go up — it’s inevitable. We just don’t know which taxes are going to go up.”

If Biden is successful, Wall Street and investors who make most of their money from capital gains may need to get used to the idea that their taxes will look more like those of wealthy professionals such as doctors, lawyers, entertainers and even investment bankers who currently face marginal income tax rates north of 50% in high-tax states.

“Nothing is going to surprise us as this point,” said Tara Thompson Popernik, director of research for Bernstein Private Wealth Management’s wealth planning and analysis group. “We’ve been telling our clients for some time that this is likely coming.”

Tax Strategies

Strategies to avoid a higher capital gains rate will depend on the details of the proposal, and on what other provisions get changed. An obvious technique, Schwartz and other advisers said, would be to keep incomes under $1 million — or whatever threshold is in the final legislation.

Investors might also avoid the higher rate by holding onto assets for as long as possible. That strategy, however, could be complicated by other provisions that Biden and Democrats have floated, like beefing up the estate tax and ending a rule, called step-up-in-basis, that allows asset-holders to wipe away capital gains taxes at death.

Life insurance products could also be a way for investors to cut investment taxes, as long as Democrats don’t target those strategies as well.

Alternatively, investors and business owners could rush to sell assets now, or before the end of the year — assuming tax changes aren’t made retroactive to the beginning of the year — to lock in lower rates. Advisers said they’ve been discussing sales of art and family businesses, along with highly appreciated stock, by year-end.

“If you’re going to do it anyway, maybe do it now,” Bernstein’s Thompson Popernik said. “The worry is that in the fourth quarter everyone else is going to be trying to make those changes at the same time.”

Thursday’s drop in the market prompted worries that, as Biden’s plans solidify and Congress starts to take action, stocks could continue to sell off. But it might not work that way.

“I would tell people to temper their fear of a significant drop-off in the markets,” said Bob Schneider, director of financial planning at Johnson Financial Group. Historically, markets have often risen even while taxes are going up, he said.

Indeed, stocks climbed on Friday after strong economic data. Also, what else are investors going to do with their money? Especially at a time when the economy seems to be bouncing back from the pandemic, many investors want exposure to stocks.

“Yields are very low, so there aren’t a whole lot of other options,” Schneider said. “People will realize their gains and probably turn right back around and put their money back in the market.”

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Source: Rich Americans Hunt for Ways Around Tax Hikes They Were Warned About – Bloomberg

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5 Things You Should Know About Capital Gains Tax

A capital gain occurs when you sell something for more than you spent to acquire it. This happens a lot with investments, but it also applies to personal property, such as a car. Every taxpayer should understand these basic facts about capital gains taxes.

Capital gains aren’t just for rich people

Anyone who sells a capital asset should know that capital gains tax may apply. And as the Internal Revenue Service points out, just about everything you own qualifies as a capital asset. That’s the case whether you bought it as an investment, such as stocks or property, or for personal use, such as a car or a big-screen TV.

If you sell something for more than your “basis” in the item, then the difference is a capital gain, and you’ll need to report that gain on your taxes. Your basis is usually what you paid for the item. It includes not only the price of the item, but any other costs you had to pay to acquire it, including:Your resource on tax filingTax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.Go Now

  • Sales taxes, excise taxes and other taxes and fees
  • Shipping and handling costs
  • Installation and setup charges

In addition, money spent on improvements that increase the value of the asset—such as a new addition to a building—can be added to your basis. Depreciation of an asset can reduce your basis.

In most cases, your home is exempt

The single biggest asset many people have is their home, and depending on the real estate market, a homeowner might realize a huge capital gain on a sale. The good news is that the tax code allows you to exclude some or all of such a gain from capital gains tax, as long as you meet three conditions:

  1. You owned the home for a total of at least two years in the five-year period before the sale.
  2. You used the home as your primary residence for a total of at least two years in that same five-year period.
  3. You haven’t excluded the gain from another home sale in the two-year period before the sale.

If you meet these conditions, you can exclude up to $250,000 of your gain if you’re single, $500,000 if you’re married filing jointly.

AdChoices

Length of ownership matters

If you sell an asset after owning it for more than a year, any gain you have is a “long-term” capital gain. If you sell an asset you’ve owned for a year or less, though, it’s a “short-term” capital gain. How much your gain is taxed depends on how long you owned the asset before selling.

  • The tax bite from short-term gains is significantly larger than that from long-term gains – typically 10-20% higher.
  • This difference in tax treatment is one of the advantages a “buy-and-hold” investment strategy has over a strategy that involves frequent buying and selling, as in day trading.
  • People in the lowest tax brackets usually don’t have to pay any tax on long-term capital gains. The difference between short and long term, then, can literally be the difference between taxes and no taxes.

Capital losses can offset capital gains

As anyone with much investment experience can tell you, things don’t always go up in value. They go down, too. If you sell something for less than its basis, you have a capital loss. Capital losses from investments—but not from the sale of personal property—can be used to offset capital gains.

  • If you have $50,000 in long-term gains from the sale of one stock, but $20,000 in long-term losses from the sale of another, then you may only be taxed on $30,000 worth of long-term capital gains.
    • $50,000 – $20,000 = $30,000 long-term capital gains

If capital losses exceed capital gains, you may be able to use the loss to offset up to $3,000 of other income. If you have more than $3,000 in excess capital losses, the amount over $3,000 can be carried forward to future years to offset capital gains or income in those years.

Business income isn’t a capital gain

If you operate a business that buys and sells items, your gains from such sales will be considered—and taxed as—business income rather than capital gains.

For example, many people buy items at antique stores and garage sales and then resell them in online auctions. Do this in a businesslike manner and with the intention of making a profit, and the IRS will view it as a business.

  • The money you pay out for items is a business expense.
  • The money you receive is business revenue.
  • The difference between them is business income, subject to employment taxes.

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