Busy Season Begins...
Busy season has begun again and I already feel myself getting backed up. I am now returning to work on returns seven days a week with a lot of late nights and the occasional early morning when I happen to wake up before the rest of the family does. I do hope to make at least one more post before my work gets heavily backlogged, but let me repeat some advice from last season. If you have all or most of your tax records now and are ready to start having your annual return prepared, now - and I mean right now - is the time to get these records to your tax professional. Chances are that he or she will be able to prepare it in a very short time and get it filed quickly, because few of their clients have all the necessary records ready for them. If you're receiving a refund, you'll be receiving that much sooner and if you owe money, you'll have a substantial amount of time to get to the money together to pay it by the April 18, 2023 deadline. If you have most, but not all, of your tax records available to you, submitting them to your tax professional is also a good idea, because when you get the rest of them, your return will also likely get prepared much faster, as your tax professional will probably have already entered what you sent to them earlier. Furthermore, the sooner you get your tax return done, the sooner you can start planning for next year's tax return and make whatever adjustments you need to get a more pleasing result when you file your 2022 tax return. Whether it means putting more in your 401(k) plan, increasing deposits to your health savings account, making higher estimated payments, changing your withholding so you don't have the "sticker shock" of owing a large amount when it's time to file, or getting a planned giving arrangement set up to take the highest possible advantage of the charitable deduction, the earlier in the year you do it, the better the benefit to you.
Extended deadline, October 15 fast approaching - get the documents to your tax professional now
For those of you who filed extensions on your personal income tax returns, the deadline for filing is fast approaching. Remember that filing an extension prevents the Internal Revenue Service (IRS) from imposing late filing penalties of up to 25% of any outstanding tax, provided that the return is filed by October 15, but does not prevent the IRS from imposing late payment penalties equal to 0.5% of the outstanding balance per month or part, beginning April 15, as well as late payment interest. If your return is not filed by October 15, assuming you filed an extension, an additional penalty equal to 25% of the outstanding tax can also be imposed.
It is crucial to have all your tax documents to your tax professional as soon as possible. Do not expect your tax professional will be able to timely file your return if you send him your materials on October 14 or 15. If you are expecting a refund, however, there is no penalty or interest. If you do not think you can have your materials to your tax professional in time for the October 15 deadline, then the best thing to do is to estimate your federal tax liability for the prior year as best you can on your own and make a larger than necessary payment to ensure you are overpaid and the late filing penalty cannot be imposed (late payment penalties and interest may still be imposed, however). Any overpayment can be refunded or applied to your next year’s tax.
Please note that after October 15, the IRS announces a date when it will temporarily close its system for electronic filing of returns, typically sometime in November. At that point you will either need to have your return for the prior year mailed, or wait until sometime in the following January or February to file the prior year’s return, when the IRS re-opens the system for electronic filing.
Help your tax professional help you - get your tax documents over to them as far ahead of the tax filing deadline as you possibly can, and be prepared to immediately answer any questions they may have about your situation for the prior year that your documents don’t necessarily reveal. This will ensure timely filing of your returns and help prevent or minimize any penalties or interest imposed on any unpaid taxes.
Busy Season Underway… and, Help Your Tax Professional Help You
Busy season is well underway and it’s back to a lot of late nights, seven days a week. I am doing my best to avoid cutting corners from ordering takeout food when I feel I don’t have enough time to get dinner together, because we all know about the carbs, fat and grease found in most establishments serving that type of fare.
Whoever you are using to do your taxes this year, help them help you by keeping your records well-organized and summarize what you can. If you have a business or rental property, a tax professional will not have the time to look through a pile of receipts or bank records - your total sales or rent collected and the various expenses need to be summarized in a chart or spreadsheet. If there are any items that you are not sure you should give your tax professional, err on the side of caution and send them with everything else. All of this will reduce any back-and-forth between you and your tax professional and ultimately shorten the time it takes them to complete the return and get it filed. Also - if your bank changed in the last year, it is crucial you give them your new bank’s account and routing number in order to ensure you get your refund as quickly as possible.
While your tax professional works for you, to ensure the best possible result for you, do what you can to make things organized and simpler for them. You will thank yourself for it when the return is filed on time and any refund comes that much sooner.
Until then, rest easy! Now back to work for me…
Tax Breaks for Relatives in your Care Besides Your Children
While it is well-known that you receive certain tax credits and deductions for the care of your children, there are additional tax credits and deductions for other relatives in your care, such as your aging parents, uncles or aunts.
If a parent lives with you and you’re paying more than half of their living expenses (i.e. housing, food, utilities, health care, repairs, clothing, travel and other necessities), and the parent has annual earnings of less than $4,300 (non-wage income), you may claim them as a dependent and get a nonrefundable tax credit of up to $500. The same rule would apply for other relatives who are not your natural children, children you have adopted or children under a guardianship arrangement.
Furthermore, if you claim this relative as a dependent and you help pay their medical, dental and/or long-term care expenses, and weren’t reimbursed by insurance, you can deduct the expenses that exceed 7.5 percent of your adjusted gross income (AGI), assuming you itemize deductions on your return. If the standard deduction is greater than all your itemized deductions (including the amount for un-reimbursed medical expenses), you would not be able to deduct these medical expenses on your return. If you have a Health Savings Account (HSA) to which you contribute your pre-tax earnings (these contributions are excluded from taxation and thus reduce your taxable income), you may use the HSA to pay for the dependent’s un-reimbursed medical expenses, the same way you use it for your own, spouse’s or childrens’ un-reimbursed medical expenses. Bear in mind that any medical expenses paid for from an HSA cannot be deducted.
If you’re paying for in-home care or adult day care for a parent or other elderly relative so you are free to work, you might qualify for the Dependent Care Tax Credit which can be worth as much as $4,000. The relative must have been physically or mentally incapable of self-care and must have lived with you for more than six months.
For this and other tax saving or planning opportunities, consult with your tax professional today.