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Tag: Income Tax

  • How to fill out a personal tax return for 2023 – MoneySense

    How to fill out a personal tax return for 2023 – MoneySense

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    • The basic personal amount
    • The age amount
    • Amounts for spouse and dependents
    • Adoption expenses
    • CPP and/or QPP contributions
    • Employment insurance premiums
    • Home buyers and home accessibility amounts
    • Digital news subscription expenses
    • Tuition/education/textbook amounts (complete Schedule 11)
    • Medical expenses
    • Donations and gifts (fill out Schedule 9)

    Part C, Net federal tax:

    There are more opportunities for tax reductions in this section, including the common dividend tax credit and the less common minimum tax carry forward on split income and political contributions tax credits. The advance received on the Canada Worker’s Benefit by lower income earners is also recorded here.

    Step 6: Refund or balance owing

    You’ve reached the final stage where you’ll find out whether you will receive a tax refund or if you owe taxes. If you are self-employed, remember to add payable CPP and EI premiums here. The social benefits repayment on EI or OAS also appears here. Finally, provincial taxes computed on provincial tax forms will be added.  

    Now, onto the top of the last page of the T1 General form. This is where you enter the income tax deducted from your various slips and claim your final set of applicable tax credits, overpayments and rebates. This can include some provisions that really add up to reduce taxes or provide a bigger refund, including overpayments to the CPP and EI, the Canada Workers Benefit, the Canada Training Credit, the eligible educator school supply tax credit, and so on. Seniors, self-employed and other Canadians subject to making quarterly tax installments will also want to record the money paid to reduce their tax bill. Finally, available refundable provincial tax credits are reported.

    If your total credits exceed taxes payable, you may receive a tax refund. Specifically, if you have a negative amount, enter it where indicates you have a refund. If you have a positive amount, enter it on the line that indicates you have a balance owing.

    Once you file your tax return, if you owe any taxes, you can pay online using online banking, credit card or pre-authorized debit.

    If you’re expecting a tax refund, you should receive it within two weeks if you filed online, eight weeks if you filed by paper, or 16 weeks if you live outside of Canada or file a non-resident tax return. If you sign up for direct deposit, you will receive your refund faster than waiting for a cheque in the mail.

    Obviously, every Canadian’s tax situation is unique to them and to every year they file. So, if you’re ever in doubt, it’s a good idea to seek out a qualified accountant or a tax professional who can verify that your tax return is completed properly. Tax software can double-check for any missing information and catch many errors. But it can’t always apply for new provisions you haven’t told it about or represent you in case you are audited by the CRA.

    Step 7: Review your NOA

    It can take up to two weeks to receive a Notice of Assessment (NOA) if you file electronically. However, it can take up to eight weeks to receive your NOA if you file by paper.

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    Sandy Yong

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  • The Surprise Bill Coming to Those Who Underpay Their Taxes

    The Surprise Bill Coming to Those Who Underpay Their Taxes

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    Failing to keep up with tax payments now could lead to an expensive surprise come next spring. 

    As of Oct. 1, the Internal Revenue Service is charging 8% interest on estimated tax underpayments, up from 3% two years ago. The increase is one of the many effects of rising interest rates. 

    Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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  • We're 67 Years Old With $1 Million in IRAs. Is It Too Late to Convert to a Roth?

    We're 67 Years Old With $1 Million in IRAs. Is It Too Late to Convert to a Roth?

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    At 67, you’re presumably at or near retirement. If you have $1 million in IRAs, it may be attractive to converting to a Roth because it can provide tax-free income in retirement.

    It’s not too late from legal or regulatory perspectives. The IRS does not restrict Roth conversions on the basis of age or income. If you have existing traditional IRA assets, you can convert them. However, when making this decision at a later stage of life, noteworthy financial tradeoffs around taxes, healthcare costs, estate planning and more come into play. Ask a financial advisor if Roth IRA conversion makes sense for you.

    Understanding Roth IRA Conversions

    A Roth conversion involves moving retirement savings from a traditional IRA account into a Roth IRA account. Traditional IRA contributions provide tax deductions, lowering your taxable income each year you contribute. But traditional IRA withdrawals taken during retirement get taxed as ordinary income based on whatever tax bracket you fall into at that time.

    Roth IRAs work in the opposite manner. Contributions are made using after-tax dollars, so you don’t lower your current taxable income with contributions. However, qualified withdrawals later in retirement are completely tax-free. The conversion catch is that when you do one you have to pay any taxes due now on the funds you convert. This is not an insignificant concern.

    A 67-year-old couple converting their entire $1 million traditional IRA into a Roth version in a single year would owe income tax immediately on the entire converted balance. This lump of income would also put them into the highest income tax bracket. Tax rates could be as high as 37% federally, plus applicable state taxes of 5% to 13% depending on your location. Naturally, few people are eager to write a six-figure check to the IRS, although there are ways to make this less painful.

    Talk to a financial advisor to discuss your options for rollovers and retirement planning.

    Roth IRA Conversion Specifics

    Let’s walk through what could happen if a retired 67-year old couple with $1 million in a traditional IRA and average combined annual Social Security benefits of about $44,000 decides to convert to a Roth IRA. There are two main ways of doing this, including all at once and over time.

    If they opted to convert the entire $1 million IRA balance to a Roth IRA in a single tax year, they would incur federal and state income taxes that year on the full $1 million converted amount, placing them in the highest income tax bracket. Total ordinary tax rates could approach 40% to 45%, or $400,000 to $450,000 on a $1-million conversion.

    That’s the all-at-once approach. By taking their time and spreading the $1 million conversion over 10 years at $100,000 converted per year, they would only owe income tax each year on $100,000. Assuming for this example that Social Security benefits and income tax brackets stay unchanged, they would be in the 22% federal tax bracket. They would owe $22,000 federal tax on each $100,000 conversion, a much more manageable bill. Plus, total tax over 10 years comes to $220,000 or about half as much as the all-at-once approach.

    They would still owe taxes on their Social Security benefits as well in each of those 10 years. But diverting some savings into the Roth IRA provides some future tax-free income capacity that can be drawn on to balance out taxes owed later on traditional 401(k) or IRA withdrawals. Conversion diversification lets them prudently minimize their overall lifetime tax liability. It also creates a pool of tax-free legacy money if they eventually gift a portion of the Roth account to children or grandchildren.

    You can review your options for minimizing taxes and maximizing retirement income with a financial advisor.

    Additional Roth IRA Conversion Considerations

    Other factors also may weigh on a sizable Roth IRA conversion decision. For instance, realizing the conversion income could impact taxation of Social Security benefits, Medicare premiums and eligibility for certain tax credits like the Premium Tax Credit. Any Required Minimum Distributions (RMDs) already taking place on the existing traditional IRA would need to be accounted for in multi-year projections also.

    Estate plans should also be taken into account. For instance, if you plan to leave all your wealth to a charity, it likely makes sense to leave funds in the traditional IRA rather than converting to a Roth because the charity won’t owe taxes on the bequest. You’ll also need to ensure beneficiaries on the Roth are named correctly and evaluate the conversion’s impact on any trusts you have set up.

    Talk to a financial advisor about estate planning today.

    Making the Roth IRA Conversion Call

    If you’re thinking about doing a large Roth conversion, consider this process:

    First, clarify what should happen to the IRA assets upon death – if the goal is leaving an inheritance to heirs entirely tax-free, then doing calculated Roth conversions can guarantee that continued tax-free growth.

    Next, assess current marginal and future effective tax rates in retirement. If rates seem likely to rise substantially due to tax code changes, paying taxes now through a conversion could save money later.

    Finally, analyze existing income streams, multi-year tax scenarios, healthcare budget and estate plans.

    In most cases, you’ll wind up choosing not to convert all at once. For those with large traditional IRAs, strategic partial conversions tailored to your needs often makes the most financial sense. A financial advisor can help you weigh your options.

    Bottom Line

    In summary, once you reach 67 years old and beyond, you still can convert all or part of your traditional IRA assets over to a Roth IRA. That doesn’t mean you should, however. To decide if this aligns with your, assess your multi-year tax picture, compare current and future tax brackets, understand total costs and implications involved, and pick a Roth conversion approach that works your particular financial situation. Converting everything in one year often won’t make as much sense as spreading conversions over time.

    Tips

    • A financial advisor can explain how a Roth IRA conversion would impact tax bills, estate planning, healthcare costs and more.  SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

    • Plug your figures into SmartAsset’s Social Security calculator to get a feel for how much your benefits will be after you retire.

    Photo credit: ©iStock.com/PeopleImages

    The post We’re 67 Years Old With $1 Million in IRAs. Is It Too Late to Convert to a Roth? appeared first on SmartReads by SmartAsset.

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  • ‘Reason’ can do more good with your money than the government: Contribute to our annual webathon

    ‘Reason’ can do more good with your money than the government: Contribute to our annual webathon

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    It’s our annual webathon week, the time when we ask you—our readers, listeners, viewers, and followers—to donate to support Reason. In a world gone more than a little bonkers, Reason offers solid journalism, principled analysis, and a hearty dose of chill.

    Today is Giving Tuesday, the day we celebrate the incredible generosity of people who voluntarily give money to support the causes they value. This is in contrast to all other Tuesdays, which are Taking Tuesdays, the days the government takes roughly a third of what you earn and gives it to a lot of causes you probably don’t value at all. Giving Tuesday is the perfect time to stick it to the taxman by making a tax-deductible donation to the 501(c)(3) Reason Foundation. 

    What kind of bang do you get for your voluntary buck at Reason? Our enemies certainly think we’re changing the world. Leading populist authoritarian conservative Sohrab Ahmari recently fancifully wrote about the incoming Argentine President Javier Milei: 

    Fact check: Reason does not have a Frankenstein lab for libertarian politicians. Yet. It depends on how much you donate! In the meantime, you can read a range of perspectives on Milei in our archives. 

    In fact, Reason does get real-world results, even if they are less cinematic than Ahmari imagines. Our journalism has helped reduce unfair sentences, promoted freedom for parents and personal responsibility for kids, and held public health officials accountable for their COVID failures. We’re in your amicus briefs, your law review articles, and your classrooms. And Reason will always stick up for free speech, even when it’s unpopular.

    This year we’re hoping to raise $400,000. Your hard-earned dollars can help us meet that goal. There is some pretty cool swag on offer at various giving levels, including Reason socks (so you can rep the brand at shoes-off houses), digital subscriptions (our special Florida issue is hot off the digital presses!), a Reason beanie (BYO tinfoil lining), and a Yeti tumbler (also BYOB). At the top tiers, we’re offering invitations to Reason Weekend for first-timers, plus Zooms and/or lunches with an editor (pick me!). 

    You can get the skinny on swag at the donation page.

    Donations of any size will get you special access to our annual Ask Us Anything edition of The Reason Roundtable. Include proof of your donation when you submit a question to roundtable@reason.com and you’ll skip the line. Questions (and donations) must be in by Wednesday morning to make the cutoff.

    Reason‘s not going anywhere. But with your donation, we can reach new audiences with trustworthy, factual journalism in a world gone moderately mad. Plus, we need to get started on building that lab.

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    Katherine Mangu-Ward

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  • What to expect for GICs in 2024 – MoneySense

    What to expect for GICs in 2024 – MoneySense

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    The point? If a GIC investor is looking to lock in a good long-term interest rate, they may want to consider some bond exposure as well to diversify. If rates do in fact fall, bonds could do very well.

    Regardless, for a conservative investor, earning a return in the 6% range from a GIC is pretty enticing.

    Tax paid on GIC returns in 2024

    If you’re buying a GIC or bond in a tax-sheltered account, the tax implications do not matter. Interest income in a registered retirement savings plan (RRSP) or tax-free savings account (TFSA) is tax-free, although RRSP withdrawals are eventually taxable.

    If you are considering a GIC in a taxable account like a personal non-registered account or a corporate investment account, tax is a factor.

    If an Ontario investor with $100,000 of income earns a dollar of interest income, they pay a marginal tax rate on that dollar of about 31%. So, buying a 6% GIC leaves only about 4.1% after tax.

    If that same investor bought Canadian stocks and earned a 6% return with 2% from dividends and 4% from capital gains, selling after a year, the tax would be less. The tax rate on the dividend income would be about 9% and on the capital gain would be about 16%. The after-tax return would be about 5.2%, over 1% higher than the GIC investor earning the same 6%.

    Depending on the dollar value of the GIC or stock, the income could push the investor into a higher tax bracket than the marginal rates referenced above, but the outcome would be similar, with stocks being more tax efficient. The tax savings for stocks over GICs would also apply in other provinces.

    As a result, a stock investor could earn a lower rate of return than a GIC investor in a taxable account and still keep more of their after-tax return. Stocks generally return more than GICs or bonds over the long run, despite the year to year volatility. This is an important consideration for a GIC investor when tax is considered. After all, it is your after-tax return that really matters.

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    Jason Heath, CFP

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  • How to file your taxes online in Canada – MoneySense

    How to file your taxes online in Canada – MoneySense

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    How to use H&R Block online tax software

    Founded in 1955 and with more than 1,000 brick-and-mortar storefronts across the nation, H&R Block is a big name in the tax preparation business in Canada. It offers both full service and DIY filing options, in-person or online. For those wanting to do it themselves, H&R Block offers a variety of packages suitable for all sorts of filings, including those for individuals with income from rental properties, foreign countries, and self-employment or side-gigs. 

    When you’re ready, simply select the H&R Block online tax package that works for you. You can import your slips directly from the CRA, and the software’s SmartSearch feature lets you input all the information from them in one place so you don’t have to jump around. The program automatically scans for credits or deductions you might be able to claim. And should you need assistance, you can purchase live, on-screen expert help. When you’re finished, you can Netfile your return directly to the CRA or Revenu Québec. (Netfile is the electronic tax-filing service of the Government of Canada.)

    H&R Block has a long history and it will appeal to those who value longevity and want the ability to get help, if needed. In addition to in-person offices and phone service, H&R Block also offers paid audit protection and priority support. 

    Cost: Free for a simple return; $19.99 for deluxe (claims and credits); $34.99 for premier (like Deluxe but includes investments, rental and foreign incomes); and $44.99 for Self-Employed.
    Features: SmartSearch for tax slip information; DeductionPro donation calculator; web and mobile access; free filing for those 25 years old and under; additional filing help starting at $39.99; optional paid audit protection and priority support.
    Refund turn-around time: As few as eight days.

    How to use Wealthsimple Tax

    Established in 2012 as SimpleTax and purchased by robo-advisor Wealthsimple in 2019, Wealthsimple Tax offers Canadians a deep portfolio of features and a few interesting extras—at no cost (although you can tip based on your experience). 

    Unlike some other online income tax filers, there are no packages or tiers with Wealthsimple Tax. Its software can handle self-employment, small business and investment property income. All customers have access to any of the features, which include the ability to import previous returns, automatically import and auto-fill CRA slips, search for deductions, calculate how to maximize your RRSP refund, and file using Netfile. Wealthsimple Tax even lets you connect to your cryptocurrency wallet and auto-fill gains or losses. 

    With Wealthsimple Tax, there’s free 24/7 support available through email; it does not currently support questions by phone or chat. Wealthsimple Tax backs up its product with a refund guarantee. If you find a better refund, the company will reimburse you for whatever you paid to file, up to $50.

    Cost: Free (pay as you wish, for real)
    Features: Import slips and auto-fill return; search for deductions; link with crypto wallets; registered retirement savings plan (RRSP) maximizer calculator; 24/7 support; maximum refund guarantee.
    Refund turn-around time: As few as eight days with direct deposit.

    How to use Intuit TurboTax

    TurboTax is a product of Intuit Canada, the financial software company that owns QuickBooks. It follows the online filing model and offers three products (free, Deluxe and Premier), each available with three different tiers of help: full DIY, assist and review with a tax expert, or full service. 

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    Keph Senett

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  • How a second set of Trump tax cuts could jack up the national debt

    How a second set of Trump tax cuts could jack up the national debt

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    If Donald Trump were to be elected president in 2024, what would it mean for U.S. tax policy and the national debt?

    There are growing expectations that he could deliver another round of big tax cuts, with the reductions coming right as those enacted in 2017’s Tax Cut and Jobs Act are due to expire in 2025.

    “If Republicans hold their House…

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  • How is passive income taxed in Canada? – MoneySense

    How is passive income taxed in Canada? – MoneySense

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    A corporation’s investment income is generally taxable at between about 47% and about 55%, depending on the corporation’s province of residence. This includes interest, foreign dividends and rental income.

    Canadian dividend income earned by a corporation is generally subject to about 38% tax, although dividends paid between two related corporations may be tax-free (i.e. paying dividends from an operating company to a holding company).

    For a corporation, capital gains are 50% tax-free—just as they are for individuals—such that corporate tax on capital gains ranges from about 23% to about 27%.

    Rental income

    Rental income is fully taxable personally and corporately at regular tax rates. So, this means 31% for an Ontario resident with $100,000 of income, for example, and between 47% and 55% corporately depending on the corporation’s province or territory of residence.

    The caveat is that only net rental income is taxable. A rental property investor can deduct eligible rental expenses including, but not limited to, mortgage interest, property tax, insurance, utilities, condo fees, professional fees, repairs and related costs.

    Income in an RRSP

    Registered retirement savings plan (RRSP) accounts are tax-deferred with tax payable on withdrawals. However, there are tax implications to owning investments in your RRSP and other registered retirement accounts.

    Foreign dividends are generally subject to withholding tax before being paid into your account or an RRSP investment at rates ranging from 15% to 30% (in the case of a mutual fund or ETF). In a taxable account, this withholding tax does not matter as much because you generally claim a foreign tax credit to avoid double taxation. In an RRSP, the foreign withholding tax is a direct reduction in your investment return with no way to recover the tax. This does not mean you should avoid foreign investments in your RRSP. It is simply a cost of diversifying your retirement accounts.

    One exception is U.S. dividends. If you buy U.S. stocks or U.S.-listed ETFs that owned U.S, stocks, there is no withholding tax on dividends paid in your RRSP. If you own an ETF that owns U.S. stocks that trades on a Canadian stock exchange, or you own a Canadian mutual fund that owns U.S. stocks, there will be 15% withholding tax on the dividends of the underlying stocks before they are paid into the fund.

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    Jason Heath, CFP

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  • IRS has collected $160 million in back taxes by cracking down on millionaires | CNN Politics

    IRS has collected $160 million in back taxes by cracking down on millionaires | CNN Politics

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    Washington
    CNN
     — 

    The Internal Revenue Service has collected $160 million in back taxes this year by cracking down on millionaires who haven’t paid what they owe, the agency said Friday.

    The recent effort to target high-income individuals has been boosted by an increase in federal funding provided by Democrats last year through the Inflation Reduction Act. Republicans have criticized the amount of money the IRS is getting, and future funding is uncertain.

    In September, the IRS started seeking back taxes from about 1,600 taxpayers with income above $1 million and more than $250,000 in tax debt. So far, the IRS has closed 100 of those cases, collecting $122 million, it said Friday.

    Earlier this year, the IRS collected $38 million from more than 175 high-income earners. That brings the total to $160 million so far this year.

    “I think that the evidence that we’ve seen to date, in terms of the amount that we have recovered … points to this being a highly important effort for us,” IRS Commissioner Danny Werfel said on a call with reporters.

    In one successful case, an individual was ordered to pay more than $15 million in restitution last month for falsifying personal expenses as deductible business expenses, including the construction of a 51,000-square-foot mansion complete with an outdoor pool and pool house, as well as tennis, basketball and bocce courts, according to an IRS press release. The person also falsified expenses for luxury vehicles, artwork, country club memberships and homes for his children.

    Another individual pleaded guilty last week to filing false tax returns and skimming more than $670,000 from his business. The person spent $110,000 on personal expenses and $502,000 on gambling, the IRS said.

    The agency’s effort to ramp up enforcement aims to narrow what’s known as the “tax gap,” the difference between the amount owed and the amount actually collected on time by the IRS. The most recent estimate shows that $688 billion was not collected during tax year 2021.

    The IRS plans to bring a new focus to cracking down on large corporations that have not been paying the taxes they owe.

    The agency will target US subsidiaries of foreign companies that distribute goods in the US and do not pay what they owe in taxes on the profit they earn. It will start sending compliance notices next month to about 150 subsidiaries to “reiterate their US tax obligations and incentivize self-correction,” the announcement said.

    As new accountants come on board at the IRS in early 2024, they are expected to begin 60 audits of some of the largest corporate taxpayers. The targeted corporations will be selected by the IRS accountants using a combination of artificial intelligence and subject matter expertise that will better detect tax cheating. The use of technology is meant to help avoid burdening taxpayers with needless audits.

    The Inflation Reduction Act, which included a provision to deliver $80 billion to the IRS over 10 years, has allowed the agency to begin a complete overhaul of its operations. It’s working to hire new staff, update technology, improve taxpayer services and audit tax cheats.

    The new funds have already helped improve taxpayer services at the IRS. In the 2023 filing season, it answered 3 million more calls and cut phone wait times to three minutes from 28 minutes compared with the year before.

    The IRS is currently working on building its own free tax filing program, known as Direct File, that will launch as a limited pilot program next year.

    The IRS has also put a plan in motion to digitize all paper-filed tax returns by 2025. The move is expected to cut processing times in half and speed up refunds by four weeks.

    Republicans have raised questions about whether the $80 billion investment in the IRS would lead to increased audits for average Americans. Earlier this year, Republican lawmakers were able to reclaim $20 billion of the funding in a bipartisan deal to address the debt ceiling.

    The White House argued that the cut won’t fundamentally change what the IRS can do over the next few years. Biden administration officials have also repeatedly said that taxpayers earning less than $400,000 a year won’t face an increase in audits due to the new funding.

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  • Here’s why Americans can’t stop living paycheck to paycheck

    Here’s why Americans can’t stop living paycheck to paycheck

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    For many Americans, payday can’t come soon enough. As of June, 61% of adults are living paycheck to paycheck, according to a LendingClub report. In other words, they rely on those regular paychecks to meet essential living expenses, with little to no money left over.

    Almost three-quarters, 72%, of Americans say they aren’t financially secure given their current financial standing, and more than a quarter said they will likely never be financially secure, according to a survey by Bankrate.

    “There are actually millions of people struggling,” said Ida Rademacher, vice president at the Aspen Institute. “It’s not something that people want to talk about, but if you were in a place where your financial security feels superprecarious, you’re not alone.”

    This struggle is nothing new. Principal Financial Group found in 2010 that 75% of workers were concerned about their financial futures. What’s more, since 1979, wages for the bottom 90% of earners had grown just 15%, compared with 138% for the top 1%, according to a 2015 Economic Policy Institute report. But there’s now a renewed focus on wage-earner anxiety amid higher inflation and rising interest rates.

    More from Personal Finance:
    Americans think they need a $233,000 salary, nearly $1.3 million for retirement
    Why Americans are struggling with car loans
    Majority of parents spend 20% or more of household income on child care

    The typical worker takes home $3,308 per month after taxes and benefits, based on the latest data from the U.S. Bureau of Labor Statistics. But when you take a look at the cost of some of the most essential expenses today, it’s easy to see why consumers feel strained.

    The median monthly rent in the U.S. was $2,029 as of June, according to Redfin. That amount already accounts for about 61% of the median take-home pay.

    Meanwhile, the Council for Community and Economic Research reported that the median mortgage payment for a 2,400–square-foot house was $1,957 per month during the first quarter of 2023, which accounts for about 59% of the median take-home pay.

    “Inflation is really hurting individuals having stability in their housing,” said certified financial planner Kamila Elliott, co-founder and CEO of Collective Wealth Partners in Atlanta. She is a member of CNBC’s Financial Advisor Council. “If you have uncertainty in your housing, it causes uncertainty everywhere.”

    Combine that with the average $690.75 Americans spend each month on food and out-of-pocket health expenditures that cost the average American $96.42 monthly, and you get a total expense of $2,816.17 for renters and $2,744.17 for homeowners.

    That amount already accounts for just over 85% of the median take-home pay for average American renters and almost 83% for an average homeowner. This is excluding other essential expenses such as transportation, child care and debt payments.

    “So much of managing your financial life in America today is like drinking from a firehose that many households are not able to show up and impose a framework of their own design onto their finances,” said Rademacher. “Many are still in this reactionary space where they’re just trying to figure out how to make ends meet.”

    Watch the video to learn more about why financial security feels so impossible in the U.S. today.

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  • Earn big bucks? Here’s how much you might save by moving to Miami.

    Earn big bucks? Here’s how much you might save by moving to Miami.

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    High-income workers across the U.S. have migrated to Miami to take advantage of the city’s generous tax policies and moderate cost of living. But depending on what parts of the country you’re from, moving to the Magic City may not make financial sense.

    That’s the main finding of a new study from financial technology company SmartAsset. According to the study, workers in New York City with $650,000 in annual income could save nearly $200,000 a year by moving to Miami, where the cost of living is roughly 115% lower than in the Big Apple. 

    Equally well-off San Franciscans would experience a 60% drop in cost of living in Miami and save slightly over $150,000 a year. By contrast, Chicagoans at that salary level would find the cost of living in Miami to be only 6% lower and would save just $10,500 by heading south. 

    SmartAsset used federal, state and local tax, and cost of living data to calculate how much single tax filers from New York, San Francisco and Chicago earning between $150,000 and $650,000 a year could save by settling in Miami. Researchers also factored in housing expenses using data from each city’s downtown area. 

    The study shows savings increased with workers income, with higher earners getting the most bang for their buck. Still, people making $150,000 could hold onto more of their paycheck by settling down in Miami, with savings ranging from roughly $1,900 to $48,000, depending on what city they are moving from.

    Savings across income levels were consistently higher for New York residents than for residents of other cities, the study shows. That’s because New York’s cost of living is the highest of the cities SmartAsset analyzed, at 137% above the national average. Miami’s cost of living is 23% above the national average. 

    Not just snow birds

    With the cost of living in New York so high, it should come as no surprise that many of the city’s residents are eyeing greener pastures. 

    According to search activity data from real estate listing website Realtor.com, many prospective homebuyers and renters living in New York are searching for properties in Florida. Seven of the 10 most-searched counties by New York-based users on the site were in Florida, and all were outside of New York state.

    New Yorkers are also responsible for 23% of searches for housing in Miami-Dade county, according to Realtor.com data. 

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  • Most Americans aren’t happy with how much income tax they paid this year

    Most Americans aren’t happy with how much income tax they paid this year

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    Americans’ discontent with the size of their federal income-tax bill is at a two-decade high, according to a new poll — even though Congress hasn’t passed any direct income-tax increases in recent years.

    One month after the 2023 tax season’s conclusion, 51% of respondents in a newly released Gallup poll said their income taxes were not fair. That’s up from 44% last year and marks a record high since 1997, when Gallup’s pollsters started asking how people felt about their income-tax bills.

    Meanwhile, 46% of people said they were paying a fair amount of income tax. That basically matched the dim mood over two decades ago, in in 1999, when 45% said that they were paying a fair amount.

    Six in 10 poll participants said their federal income taxes were “too high,” pollsters said. 2001 was the last time that share of people felt the same way, Gallup said.

    Feeling the squeeze: Grocery prices are rising more slowly, but food insecurity is surging among low-income Americans

    Gallup pollsters spoke with more than 1,000 people, doing their field work through most of April.

    The poll comes during a fierce debate about whether the wealthiest taxpayers, as well as corporations, are paying enough in taxes. The Biden administration has been pressing for higher tax rates on high earners. A Democratic-controlled Congress last year passed a law with an $80 billion funding infusion for the IRS over a 10-year span in part to launch more audits of rich individuals and corporations.

    Many Americans walked away from tax season with income-tax refunds that were smaller than a year ago. That’s due, at least in part, to the end of pandemic-era boosts to certain credits, tax experts have previously told MarketWatch.

    Both backdrops might be at play in the public mood on taxes, observers noted, and political affiliation could have something to do with these changes, Gallup said. Only one-third of Republicans said their income taxes this year were fair, for example — that’s down from 63% in 2020, the last full year of the Trump administration.

    The change in Republican sentiment could be why there was a heavy swing since 2020, when 59% said their taxes represented a fair number. In 2020, 56% of political independents said their taxes were fair, and that percentage fell to 45% a few years later. Among Democrats, meanwhile, the 63% saying their taxes were fair was virtually unchanged over that span.

    Republicans “are certainly more frustrated now with Biden in office,” said Jeff Jones, senior editor of the Gallup poll. “But they are even more frustrated than they were when Obama was in office.”

    Democrat Joe Biden campaigned in 2020 on pledges to raise taxes on corporations and households earning over $400,000 a year and not on those making less than that. So far, the president has not been able to turn proposals like a billionaire’s minimum tax or a higher top tax rate into law.

    The real tax-policy fight brewing in the background is the 2025 expiration of Trump-era tax cuts, experts have said.

    In the sweeping 2017 tax-code overhaul, Congress reduced five of seven income-tax brackets and boosted commonly used features of the tax code, including payouts for the child tax credit and the standard deduction. But some of those tax cuts were scheduled to sunset, while others were permanent.

    Another potential shaping the mood on taxes is the broader economy and recent tax season, Jones said. One possibility, he noted, is that some people are getting pushed to higher tax brackets with pay raises meant to keep up with inflation. (Tax brackets are adjusted annually to account for inflation.)

    While inflation is still pinching wallets, tax refunds are lower than they were a year ago.

    Refunds averaged just over $2,800, and that’s down more than 7% from a year earlier, according to IRS data through May 12.

    So you know: What happens if you can’t pay your taxes? IRS has a payment plan — but read this before you sign up.

    For his part, Lawrence Zelenak, who teaches tax law at Duke University, thinks the current darkening public mood “is largely a response to the disappearance of all the temporary pandemic-related tax relief,” he said.

    In 2020 an estimated 60% of households ended up with no federal income-tax liability because they were making less and bringing in more through direct cash assistance from the federal government, according to Tax Policy Center estimates.

    By 2022, an estimated 40% of households wouldn’t face any federal income tax, according to the nonpartisan think tank — which is more in line with levels seen before the pandemic.

    Keep in mind: IRS will launch free tax-filing pilot in 2024. TurboTax, H&R Block and Republicans are opposed.

    Refunds during 2022 got a kick from extragenerous payouts including the child tax credit, the child- and dependent-care credit and the earned-income tax credit.

    Most taxpayers also got a chance to shave their tax bill with a temporary change that let them take the standard deduction and also write off a portion of their charitable donations. But the credits reverted to their prepandemic size, and the deduction on cash donations subsequently went away.

    “With the end of the pandemic tax relief, many people have seen their income-tax liabilities go up, and it’s not surprising they see that as unfair,” Zelenak said. “So it may be the change more than the absolute level of tax.”

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  • Worried the IRS is going to audit your tax return? If you earn less than $400,000, you can probably relax.

    Worried the IRS is going to audit your tax return? If you earn less than $400,000, you can probably relax.

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    Some clarity is emerging regarding statements from Biden administration officials that no one making less than $400,000 will see higher audit rates by the Internal Revenue Service, which is about to step up its scrutiny of wealthy taxpayers.

    The Inflation Reduction Act — the tax and climate package enacted last summer — earmarked $80 billion for the IRS over the next decade and a half. The money is intended in part to facilitate more audits of corporations and wealthier individuals.

    Ahead of the bill’s passage, Treasury Secretary Janet Yellen pledged that there would be no increase in the audit rate for households and small businesses with annual incomes below $400,000 “relative to historical levels.”

    But Republican critics and other observers have asked what “historical levels” might actually mean.

    The audit rate on returns for tax year 2018 is the reference point to keep in mind, IRS Commissioner Danny Werfel told senators on Wednesday. He emphasized that “there’s no surge coming for workers, retirees and others.”

    The IRS audited fewer than 1% of 2018 returns with total positive incomes — the sum of all positive amounts shown for various sources of income reported on an individual income-tax return, which excludes losses — of between $1 and $500,000, according to statistics that the tax agency released last week.

    The agency has three years to start an audit from the time it receives a return.

    Also read: The IRS wants more people working in tax enforcement. Now it has to find them.

    The numbers show that 0.4% of returns for taxpayers earning up to $25,000 were audited. That figure was 0.3% for returns between $200,000 and $500,000 and more than 9% for returns over $10 million, the IRS data show. Six years earlier, more than 13% of returns over $10 million were scrutinized, according to the IRS.

    “Help us with understanding what the words ‘historic level’ means,” Sen. James Lankford, a Republican from Oklahoma, asked Werfel during a Wednesday budget hearing.

    “We will take the most recent final audit rate, and it’s historically low … and we allow that to be the marker for least several years, and then we’re revisit it,” Werfel said. The 2018 audit rates were the newest final rates, he added.

    “So the 2018 number is what it’s going to be?” Lankford asked.

    “Yes,” Werfel replied.

    “Werfel’s explanation that 2018 audit levels will be the reference point is the most detail I’ve heard so far,” Erica York, s senior economist at the Tax Foundation, told MarketWatch. “He did seem to leave open the possibility of revisiting the reference year for ‘historical’ in the future,” she added.

    Another open question has been how the $400,000 income threshold will be determined. Months after the Inflation Reduction Act passed, IRS and Treasury officials still hadn’t finalized what counted as $400,000 in income, according to a January Treasury Department watchdog report.

    “How are you arriving at this number?” asked Sen. Marsha Blackburn, a Republican from Tennessee. Blackburn’s state has many self-employed entrepreneurs who might appear richer on paper than they actually are, she said. “While they may have a higher gross, their net is very low,” she added.

    “We’re going to look at total positive income as our metric,” Werfel said. He later added that “there would be no increased likelihood of an audit if they have less than $400,000 in total positive income.”

    The IRS description of total positive income as “the sum of all positive amounts shown for the various sources of income reported on an individual income tax return and, thus, excludes losses” represents, effectively, a tally of income before taxpayers subtract their losses.

    Total positive income is a metric the IRS usually applies to categorize audits, the Tax Foundation’s York noted. But one challenge of strict thresholds for more audits, she said, “is that it creates incentives for underreporting income” to stay under the line.

    Compared with recent years, there are now more specifics about how the IRS will implement additional audits of higher-income taxpayers, said Janet Holtzblatt, a senior fellow at the Tax Policy Center.

    “But still there are questions,” she noted, about how the agency will treat situations when taxpayers don’t provide full picture of their income.

    Read on: Make sure the tax breaks you’re taking now won’t hammer you in retirement

    Also: ‘This was a test’: IRS has handled more than 100 million returns already — Tax Day by the numbers

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  • Today is Tax Day. Here’s what you need to know if you haven’t filed your return yet — and even if you have | CNN Business

    Today is Tax Day. Here’s what you need to know if you haven’t filed your return yet — and even if you have | CNN Business

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    Editor’s Note: This is an updated version of a story that originally ran on April 14, 2023.


    New York
    CNN
     — 

    It’s April 18, the official deadline to file your federal and state income tax returns for 2022. (It is also, apparently, National Animal Crackers Day for those who celebrate.)

    Whether you have already filed your tax return or still need to, the good news is this tax filing season has gone much more smoothly than the past three, which were hurt by the pandemic.

    “This is the first tax season since 2019 where the IRS and the nation were on normal footing,” IRS Commissioner Danny Werfel said in a call with reporters.

    For instance, Werfel noted that since January, thanks to an infusion of some new funding after years of budget cuts, IRS employees have been able to answer 87% of calls from filers with questions. Last year, they answered fewer than 15%. And the wait times on those phone calls dropped to just 4 minutes this filing season from 27 minutes last filing season.

    The agency also added a roster of new online tools for filers, he added.

    Those online tools may be especially helpful today if you are scrambling to get your return in before midnight. Or, if you’ve come to the realization that you need to file for an extension. Either way, here are some key things to know:

    Not everyone has to file on April 18: If you live in a federally declared disaster area, have a business there — or have relevant tax documents stored by businesses in that area — it’s likely the IRS has already extended the filing and payment deadlines for you. Here is where you can find the specific extension dates for each disaster area.

    Thanks to many rounds of extreme weather in recent months, for instance, tax filers in most of California — which accounts for 10% to 15% of all federal filers — have already been granted an extension until Oct. 16 to file and to pay, according to an IRS spokesperson.

    If you’re in the armed forces and are currently or were recently stationed in a combat zone, the filing and payment deadlines for your 2022 taxes are most likely extended by 180 days. But your specific extended filing and payment deadlines will depend on the day you leave (or left) the combat zone. This IRS publication offers more detail.

    Lastly, if you made little to no money last year (typically less than $12,950 for single filers and $25,900 for married couples), you may not be required to file a return. But you may want to anyway if you think you are eligible for a refund thanks to, for instance, refundable tax credits such as the Earned Income Tax Credit. (Use this IRS tool to gauge whether you are required to file this year.) You also are likely eligible to use IRS Free File (intended for those with adjusted gross income of $73,000 or less) so it won’t cost you to submit a return.

    Your paycheck may not be your only source of income: If you had one full-time job you may think that is the only income you made and have to report. But that’s not necessarily so.

    Other potentially taxable and reportable income sources include:

    • Interest on your savings
    • Investment income (e.g., dividends and capital gains)
    • Pay for part-time or seasonal work, or a side hustle
    • Unemployment income
    • Social Security benefits or distribution from a retirement account
    • Tips
    • Gambling winnings
    • Income from a rental property you own

    Organize your tax documents: By now you should have received every tax document that third parties are required to send you (your employer, bank, brokerage, etc.).

    If you don’t recall receiving a hard copy of a tax form in the mail, check your email and your online accounts — a document may have been sent to you electronically.

    Here are some of the tax forms you may have received:

    • W-2 from your wage or salaried jobs
    • 1099-B for capital gains and losses on your investments
    • 1099-DIV from your brokerage or company where you own stock for dividends or other distributions from their investments
    • 1099-INT for interest over $10 on your savings at a financial institution
    • 1099-NEC from your clients, if you worked as a contractor
    • 1099-K for payments for goods and services through third-party platforms like Venmo, CashApp or Etsy. The 1099-K is required if you made more than $20,000 in over 200 transactions during the year. (Next year the reporting threshold drops to $600.) But even if you didn’t get a 1099-K you still must report all the income that you made over third-party platforms in 2022.
    • 1099-Rs for distributions over $10 that you received for a pension, annuity, retirement account, profit-sharing plan or insurance contract
    • SSA-1099 or SSA-1042S for Social Security benefits received.

    “Be aware that there’s no form for some taxable income, like proceeds from renting out your vacation property, meaning you’re responsible for reporting it on your own,” according to the Illinois CPA Society.

    One very last-minute way to reduce your 2022 tax bill: If you’re eligible to make a tax-deductible contribution to an IRA and haven’t done so for last year, you have until April 18 to contribute up to $6,000 ($7,000 if you’re 50 or older). That will reduce your tax bill and augment your retirement savings.

    Proofread your return before submitting it: Do this whether you’re using tax software or working with a professional tax preparer.

    Little mistakes and oversights delay the processing of your return (and the issuance of your refund if you’re owed one). You want to avoid things like having a typo in your name, birth date, Social Security number or direct deposit number; choosing the wrong filing status (e.g., married vs single); making a simple math error; or leaving a required field blank.

    What to do if you can’t file by April 18: If you’re not able to file on time, fill out Form 4868 electronically or on paper and send it in no later than today. You will be granted an automatic six-month extension to file.

    Note, however, that an extension to file is not an extension to pay. You will be charged interest (currently running at 7%) and a penalty on any amount you still owe for 2022 but haven’t paid by April 18.

    So if you suspect you still owe tax — perhaps you had some income outside of your job for which tax wasn’t withheld or you had a big capital gain last year — approximate how much more you owe and send that money to the IRS by the end of today.

    You can choose to do so by mail, attaching a check to your extension request form. Make sure your envelope is postmarked no later than April 18.

    Or the more efficient route is pay what you owe electronically at IRS.gov, said CPA Damien Martin, a tax partner at EY. If you do that, the IRS notes you will not have to file a Form 4868. “The IRS will automatically process an extension of time to file,” the agency notes in its instructions.

    If you opt to electronically pay directly from your bank account, which is free, select “extension” and then “tax year 2022” when given the option.

    You can also pay by credit or debit card, but you will be charged a processing fee. Doing so, though, may become much more costly than just a fee if you charge your tax payment but don’t pay your credit card bill off in full every month, since you likely pay a high interest rate on outstanding balances.

    If you can’t pay what you owe in full, the IRS does have some payment plan options. But it might be smart to first consult with a certified public accountant or a tax preparer who is an enrolled agent to make sure you are making the best choice for your circumstance.

    If you still owe income taxes to your state, remember that you may need to go through a similar exercise of filing for an extension and making a payment to your state’s revenue department, Martin said.

    Use this interactive tax assistant for basic questions you may have: The IRS provides an “interactive tax assistant” that can help you answer more than 50 basic questions pertaining to your individual circumstance on income, deductions, credits and other technical questions.

    If you’ve already filed your return, you’re probably glad to have it in the rear view mirror. But you may still have a few questions about what’s ahead.

    What about my refund? If you are due a refund, the IRS typically sends it within 21 days of receiving your return. When yours does arrive, it may be smaller than last year, even if your financial life didn’t change much. That’s because a number of Covid-related tax breaks expired.

    So far, the average refund paid was $2,878 for the week ending April 7, down from $3,175 at the same point in last year’s filing season.

    Will I be audited?: The reasons and methods for auditing a taxpayer can vary — and many audits result in “no change,” meaning you don’t end up owing anything more to the IRS. But one thing is common for the vast majority of US tax filers: Audit rates are exceedingly low.

    For filers reporting incomes between $50,000 and $200,000, only 0.1% of them were audited in 2020, according to the latest data from the IRS. Even for very high income filers, audit rates were quite low: Just 0.4% for those reporting income of between $1 million and $5 million; 0.7% for those with income between $5 million and $10 million; and 2.4% for returns with income over $10 million.

    Looking ahead, the IRS commissioner noted in a press call that the agency will be using money from the Inflation Reduction Act to bolster its compliance efforts to focus more on auditing high-income individuals — defined as making $400,000 or more. As for filers with income below that level, he said he did not anticipate any change in the likelihood they would be audited.

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  • Opinion: Why millionaires like us want to pay more in taxes | CNN

    Opinion: Why millionaires like us want to pay more in taxes | CNN

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    Editor’s Note: Abigail Disney is an Emmy-winning documentary filmmaker, activist, and member of the Patriotic Millionaires. Her latest film, “The American Dream and Other Fairy Tales,” co-directed with Kathleen Hughes, made its world premiere at the 2022 Sundance Film Festival. Morris Pearl is the chair of Patriotic Millionaires, and former managing director of BlackRock. The opinions expressed in this commentary are their own. View more opinion on CNN.



    CNN
     — 

    Tuesday is Tax Day in America, one of the most stressful days of the year, when many taxpayers will finally end their procrastination, file their federal returns, and hope for a refund from the IRS. But for many of the nation’s wealthiest, it’s just another Tuesday.

    Morris Pearl

    Tax Day isn’t just a filing deadline — it’s also an annual reminder that the ultra-rich exist in an entirely separate world when it comes to taxes. For us, the loopholes are bigger and the rates are sometimes lower. Meanwhile, the rich keep getting richer, with the wealth of billionaires in particular growing by more than $1.5 trillion over the last few years.

    This status quo is unfair, but even more importantly, it’s unsustainable. Such high levels of inequality are pushing our economy and our democracy to their breaking points. That’s why we should examine how we can set our country up for long-term stability and prosperity. And we should start by ensuring that the ultra-rich pay more of what they owe the country that made their success possible.

    There are three changes to the tax code that would help us do just that:

    Right now, the US tax system values money over sweat. If you work hard for your money instead of earning it passively, you’re essentially penalized for it. People who earn a salary pay significantly higher tax rates on their income than wealthy investors who passively earn capital gains income.

    Inheriting money is an even better deal. Thanks to former president Donald Trump’s 2017 tax law, the first $12.92 million (or $25.84 million for a married couple) is completely exempt from any estate tax, and the stepped-up basis loophole allows wealthy families to permanently erase millions in capital gains taxes by resetting the market value of those assets to their value at the time of the original owner’s death. With this, it becomes relatively simple for the rich to inherit tens, even hundreds of millions of dollars, and pay almost nothing in taxes. Someone working for that money, on the other hand, would pay over a third of it in federal income taxes.

    Why do we have a tax code that says working people should be taxed more than wealthy investors and those who got rich just by virtue of being born into the right family? At the end of the day, money is money, whether you worked for it or whether you inherited it. As an heiress and an investor, we should not be paying lower tax rates than people who earn their money from working.

    It’s time for the tax code to treat all income equally by taxing all capital gains over $1 million at the same rates as ordinary income, and replacing our loophole-ridden estate tax with a simpler inheritance tax that treats inherited wealth as income.

    We can’t just focus on income, however, because many of the richest Americans earn basically no taxable income of any kind in a typical year. Capital gains are only taxed when assets are sold, so instead of selling them, the ultra-rich use their assets as collateral to borrow vast sums of money at extremely low interest rates to live on, and then declare little or even negative “income” on their tax forms. This “Buy, Borrow, Die” strategy is a major reason billionaires paid a lower effective tax rate over recent years than working-class families.

    By rethinking what is taxable, we can get access to the trillions of dollars of billionaire wealth that is untouchable under our current tax structure. That’s why President Biden has proposed the Billionaire Minimum Income Tax, which would tax the unrealized capital gains of the wealthiest households and why others have proposed wealth taxes on billionaires.

    Finally, one of the most straightforward changes needed is to simply tax the extremely rich more than the merely rich. Our income tax caps out at a top rate of 37% for any income over $578,125 (or $693,750 for married couples). No matter how much more someone makes, they’ll never pay more than 37% in federal income taxes.

    While someone earning $600,000 is certainly making enough to live a very comfortable life, they’re in a different world than someone making $600 million a year. In order to reflect the real differences between the rich and the ultra-rich, we need to return to the top rates we had through the most prosperous decades of the 20th century and add significantly more tax brackets. They should reach up to 90% for people making more than $100 million a year.

    These three changes certainly won’t fix all our country’s problems on their own, but they would go a long way in stopping the steady flow of our country’s wealth toward a smaller and smaller group of people, a change that would make both our democracy and our economy more stable. The tax code can be a powerful tool for both social and economic change. We just need to use it more effectively.

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  • Still haven’t filed your taxes? Here’s what you need to know | CNN Business

    Still haven’t filed your taxes? Here’s what you need to know | CNN Business

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    New York
    CNN
     — 

    So far this tax season, the IRS has received more than 90 million income tax returns for 2022.

    That means tens of millions of households have yet to file their returns. If yours is among them, here are some last-minute tax-filing tips to keep in mind as the Tuesday, April 18 deadline approaches.

    Not everyone has to file on April 18: If you live in a federally declared disaster area, have a business there — or have relevant tax documents stored by businesses in that area — it’s likely the IRS has already extended the filing and payment deadlines for you. Here is where you can find the specific extension dates for each disaster area.

    Thanks to many rounds of extreme weather in recent months, for instance, tax filers in most of California — which accounts for 10% to 15% of all federal filers — have already been granted an extension until Oct. 16 to file and to pay, according to an IRS spokesperson.

    If you’re in the armed forces and are currently or were recently stationed in a combat zone, the filing and payment deadlines for your 2022 taxes are most likely extended by 180 days. But your specific extended filing and payment deadlines will depend on the day you leave (or left) the combat zone. This IRS publication offers more detail.

    Lastly, if you made little to no money last year (typically less than $12,950 for single filers and $25,900 for married couples), you may not be required to file a return. But you may want to anyway if you think you are eligible for a refund thanks to, for instance, refundable tax credits such as the Earned Income Tax Credit. (Use this IRS tool to gauge whether you are required to file this year.) You also are likely eligible to use IRS Free File (intended for those with adjusted gross income of $73,000 or less) so it won’t cost you to submit a return.

    Your paycheck may not be your only source of income: If you had one full-time job you may think that is the only income you made and have to report. But that’s not necessarily so.

    Other potentially taxable and reportable income sources include:

    • Interest on your savings
    • Investment income (e.g., dividends and capital gains)
    • Pay for part-time or seasonal work, or a side hustle
    • Unemployment income
    • Social Security benefits or distribution from a retirement account
    • Tips
    • Gambling winnings
    • Income from a rental property you own

    Organize your tax documents: By now you should have received every tax document that third parties are required to send you (your employer, bank, brokerage, etc.).

    If you don’t recall receiving a hard copy of a tax form in the mail, check your email and your online accounts — a document may have been sent to you electronically.

    Here are some of the tax forms you may have received:

    • W-2 from your wage or salaried jobs
    • 1099-B for capital gains and losses on your investments
    • 1099-DIV from your brokerage or company where you own stock for dividends or other distributions from their investments
    • 1099-INT for interest over $10 on your savings at a financial institution
    • 1099-NEC from your clients, if you worked as a contractor
    • 1099-K for payments for goods and services through third-party platforms like Venmo, CashApp or Etsy. The 1099-K is required if you made more than $20,000 in over 200 transactions during the year. (Next year the reporting threshold drops to $600.) But even if you didn’t get a 1099-K you still must report all the income that you made over third-party platforms in 2022.
    • 1099-Rs for distributions over $10 that you received for a pension, annuity, retirement account, profit-sharing plan or insurance contract
    • SSA-1099 or SSA-1042S for Social Security benefits received.

    “Be aware that there’s no form for some taxable income, like proceeds from renting out your vacation property, meaning you’re responsible for reporting it on your own,” according to the Illinois CPA Society.

    One very last-minute way to reduce your 2022 tax bill: If you’re eligible to make a tax-deductible contribution to an IRA and haven’t done so for last year, you have until April 18 to contribute up to $6,000 ($7,000 if you’re 50 or older). That will reduce your tax bill and augment your retirement savings.

    Proofread your return before submitting it: Do this whether you’re using tax software or working with a professional tax preparer.

    Little mistakes and oversights delay the processing of your return (and the issuance of your refund if you’re owed one). You want to avoid things like having a typo in your name, birth date, Social Security number or direct deposit number; choosing the wrong filing status (e.g., married vs single); making a simple math error; or leaving a required field blank.

    What to do if you can’t file by April 18: If you’re not able to file by next Tuesday, fill out Form 4868 electronically or on paper and send it in by April 18. You will be granted an automatic six-month extension to file.

    Note, however, that an extension to file is not an extension to pay. You will be charged interest (currently running at 7%) and a penalty on any amount you still owe for 2022 but haven’t paid by April 18.

    So if you suspect you still owe tax — perhaps you had some income outside of your job for which tax wasn’t withheld or you had a big capital gain last year — approximate how much more you owe and send that money to the IRS by Tuesday.

    You can choose to do so by mail, attaching a check to your extension request form. Make sure your envelope is postmarked no later than April 18.

    Or the more efficient route is pay what you owe electronically at IRS.gov, said CPA Damien Martin, a tax partner at EY. If you do that, the IRS notes you will not have to file a Form 4868. “The IRS will automatically process an extension of time to file,” the agency notes in its instructions.

    If you opt to electronically pay directly from your bank account, which is free, select “extension” and then “tax year 2022” when given the option.

    You can also pay by credit or debit card, but you will be charged a processing fee. Doing so, though, may become much more costly than just a fee if you charge your tax payment but don’t pay your credit card bill off in full every month, since you likely pay a high interest rate on outstanding balances.

    If you still owe income taxes to your state, remember that you may need to go through a similar exercise of filing for an extension and making a payment to your state’s revenue department, Martin said.

    Use this interactive tax assistant for basic questions you may have: The IRS provides an “interactive tax assistant” that can help you answer more than 50 basic questions pertaining to your individual circumstance on income, deductions, credits and other technical questions.

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  • Taxes and adulting: What to know about filing taxes on your own for the first time | CNN Business

    Taxes and adulting: What to know about filing taxes on your own for the first time | CNN Business

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    New York
    CNN
     — 

    For most people in their early- to mid-20s, filing taxes is right up there with having to pay rent and realizing you can’t take summers off anymore: an unwelcome fact of being an adult.

    If you’re a recent graduate working your first full-time job or supporting yourself for the first time, this tax-filing season may indeed be your first experience doing your own taxes without the help of a parent.

    So here are seven things to keep in mind.

    If you’re confounded by filing your taxes, you may think it’s because you’re young and inexperienced. Nonsense. Tax filers of all ages get confused by tax rules and the intricacies of all the tax documents required. And it doesn’t help that tax provisions are tweaked frequently.

    Your tax return is a financial snapshot of your life over a 12-month period, in this case 2022. And a lot can happen during that time that will have tax implications and need to be reported.

    “Think about what went on in your life in the past year,” said Tom O’Saben, the director of tax content at the National Association of Tax Preparers.

    For example, O’Saben asked, did you work more than one job? Did you move for a new job? Did you get laid off? Did you get married or have a child? Did you make student loan payments? Did you make money selling anything you own? Did you buy a home?

    Next, pull together all necessary documentation. In addition to receipts and other paperwork you may have kept, you should also have tax forms that were either mailed to you or sent electronically — from your employers, brokerage firms, college, loan servicers, the state unemployment office, etc.

    You’ll need the information on these forms to fill out your tax return accurately. Keep in mind, the IRS also has a copy of these “third-party” forms that were sent to you, so its systems will flag if there is any discrepancy between what is on the form sent to you and what you put on your return.

    Most people realize what they earn at a full-time job is subject to income tax and that those taxes are automatically withheld by your employer.

    But any side hustle income you generate, or money you make as a gig worker, is also taxable, even if you’re paid in cash or via a payment app. Ditto for tips. And often tax on that type of income is not withheld. You’re just paid a gross amount and will have to set aside money to cover the taxes owed on it.

    Severance payments and unemployment benefits may be taxable too.

    And so is investment income — meaning the profits (or “capital gain”) you make on the sale of an investment or property — which is basically the price for which you sell something minus the original price you paid for it. (Also worth noting: if you have investment income, also called “passive” income, it is taxed at a lower rate than your paycheck — i.e., “earned” income — assuming you held your investment longer than a year.)

    Most dividends and interest payments are also taxable.

    And remember all that lucrative fun you had betting on the SuperBowl or spending a weekend with friends in Vegas? Yup, your winnings from gambling and sports betting are considered taxable income. (The semi-good news is if you had any gambling losses last year, they can offset your wins, so it may be that you won’t owe tax on your winnings if your losses cancel them out.)

    For many of these types of income you should have received forms from your employer (a W2 if you’re a full-time employee); from your clients if you’re a contract or gig worker (eg. a 1099-K, a 1099-NEC) or, starting next year, from the payment apps on which you get paid for your goods and services (e.g., a 1099-MISC). Meanwhile, banks and brokerage firms will send you 1099-INTs (for interest), 1099-DIVs (for dividends) and 1099-Bs (for your capital gains and losses).

    If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you don’t have to file a state tax return because those states don’t impose an income tax. If you live in New Hampshire and Tennessee, you won’t have to file a return for your salary and wages. But you may have to file a return if you got income from dividends and interest during the tax year.

    The standard deduction reduces your adjusted gross income. The amount for tax year 2022 is $12,950 for singles; $25,900 for married couples filing jointly; and $19,400 for heads of household (e.g., a single parent).

    “That’s the amount of money you don’t have to pay tax on,” O’Saben noted.

    The only filers who itemize their deductions are those whose deductions add up to more than the standard deduction. Itemized deductions include: charitable contributions, state and local income and property taxes, mortgage interest and casualty loss if you live in a federally declared disaster area.

    But even if you just take the standard deduction you may also take in addition what are called “above-the-line” deductions. These include up to $2,500 in student loan interest that you paid in 2022 (your student loan servicer should send you a Form 1098-E); any contributions you made to a deductible IRA or to a Health Savings Account; and, if you’re a teacher, up to $300 of what you spent on school supplies and personal protective equipment for your classroom.

    [For a fuller list of different types of taxable income (“additional income”) and above-the-line deductions (“adjustments to income”), see Schedule 1 to the federal 1040 form.]

    A tax credit is a dollar-for-dollar reduction of your tax bill and if it’s a “refundable” credit, which some are, it can actually increase your refund.

    Some credits to be aware of, especially if you’re not making a lot of income:

    The Earned Income Tax Credit: The EITC is intended to help low- and moderate-income workers (defined in 2022 as those with earned income under $59,187), and especially filers with children.

    The EITC is also available to earners without qualifying children and it’s worth $560 for 2022.

    Education credits: If you were in school last year, footed the costs and are not claimed as a dependent on anyone else’s tax return, you may be eligible for an American Opportunity Tax Credit or a Lifetime Learning Credit. To see if you qualify, here’s an IRS table comparing the eligibility requirements and the value of each of those credits. Also, check to see if your educational institution sent you a Form 1098-T, which you will need if you claim one of these credits.

    The Saver’s Credit: The Saver’s Credit is a federal match for lower-income earners’ retirement contributions for up to $2,000 a year.

    The Child Tax Credit: If you’re a parent you may claim a maximum child tax credit of $2,000 for each child through age 16 if your modified adjusted gross income is below $200,000 ($400,000 if filing jointly). Above those levels, the child tax credit starts to get reduced. And the portion of the credit treated as refundable — meaning it is paid to you even if you don’t owe any federal income tax — is capped at $1,500, and that is only available to those with earned income of at least $2,500.

    And if you paid for child care in 2022, you may be eligible to claim a dependent care credit.

    Your federal tax return is due on April 18. That is the day by which you must have filed your 2022 individual tax return and paid any remaining federal income taxes owed for last year. The only exceptions are for those who lived in federally declared disaster areas, in which case their deadlines are later.

    But anyone can apply for — and will automatically be granted — a six-month extension until October 16, 2023 to file their return if they submit Form 4868 by April 18.

    Note, though, that an extension to file is not an extension to pay if you still owe the IRS more in taxes for last year than you actually paid in 2022.

    So, unless you have good reason to believe you will receive a refund, get a ballpark estimate of what more you think you’ll owe the IRS and send in that check by April 18 if you file for an extension. Otherwise you could be hit with a late payment penalty. And that could be compounded by a failure-to-file penalty if you didn’t file on time or didn’t get an automatic filing extension.

    Sign up for CNN’s Adulthood, But Better newsletter series. Our seven-part guide has tips to help you make more informed decisions around personal finance, career, wellness and personal connections.

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  • How small business owners can save this tax season

    How small business owners can save this tax season

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    How small business owners can save this tax season – CBS News


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    Some small business owners could be in for a shock this tax season. Rebecca Walser, a tax attorney and president of Walser Wealth Management, joins CBS News’s Elaine Quijano and Jericka Duncan with more.

    Be the first to know

    Get browser notifications for breaking news, live events, and exclusive reporting.


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  • How long will it take to get your tax refund?

    How long will it take to get your tax refund?

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    Americans can’t be blamed for feeling apprehensive about their tax refunds this year. After all, millions of returns got backed up at the IRS during the pandemic, and the agency recently warned taxpayers not to bank on getting their checks by any specific date when they file in 2023.

    Tax refunds typically are the biggest check that a household receives each year, with last year’s payment averaging almost $3,300. Almost 70% of taxpayers are anxious about their refunds this year, and 1 in 5 are worried their refund will be delayed in 2023, according to a new Bankrate survey. 

    While it can seem like your tax forms are sent into a black hole, the IRS has provided some data and guidance about how long you are likely to wait for your check. Here’s what to know. 

    How long will it take to get my refund? 

    The IRS says the vast majority of refunds are issued within less than 21 calendar days. 

    How long will it take if I filed a paper return? 

    Tax experts have warned that filing paper tax forms will slow down your refund because the IRS systems aren’t equipped to process them quickly. 

    And the IRS agrees. “If you filed on paper, it may take 6 months or more to process your tax return,” the agency warns. In the best-case scenario, it says, a paper tax return could have you waiting about four weeks for a refund.

    Can I track the progress of my refund? 

    People who have e-filed can check their tax return’s progress through the “Where’s My Refund?” site 24 hours after their return was filed, the IRS notes. 

    But taxpayers who file by paper may not be able to get information from “Where’s My Refund?” until four weeks after they mail their return, the tax agency said. 

    What will “Where’s My Refund?” tell me? 

    The IRS says that “Where’s My Refund” will give you a “personalized refund date” after the agency processes your return and approves your refund. 

    The tracker will tell you:

    • When the IRS received your return, which means the agency is processing your tax forms.
    • When the refund is approved, which means the IRS is preparing to send your refund to your bank or mail a check to you.
    • When the refund is sent.

    The IRS has had a lot of delays. What about this year? 

    The IRS started the tax season with a backlog of about 10 million tax returns, but the agency has been hiring more staff to help work through that and also deal with this year’s filing season. 

    So far, Americans are filing their taxes earlier than last year, with 36.9 million returns filed through February 17, an increase of about 3% compared with the same time a year earlier, according to IRS data. 

    But the IRS is also processing claims faster than in 2022, with 36.8 million returns processed through February 17 — an increase of 10% from a year earlier. 

    To be sure, that doesn’t guarantee smooth sailing for your tax return. Errors or other issues can cause tax returns to get flagged for an agent’s review, which will hold up your return — and your refund.

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