The Internal Revenue Service released the official start date for the 2022 tax season, which kicks off Jan. 23.
Whether you’re anticipating a refund or dreading the bill, you’ll want to mark some important dates on your calendar.
First, the deadline for employers to send out W-2 tax documents is Jan. 31. You know, those little sheets of paper showcasing your wages and tax — all the money that’s been taken out of your paycheck.
But you still have a few months to figure out how you’ll file your taxes.
This year, the IRS is giving most taxpayers until April 18, 2023 to submit 2022 tax returns or an extension to file and pay tax owed.
When Are Taxes Due in 2023?
April 18.
That’s when you need to file your 2022 tax returns.
Fun fact: The universal “Tax Day” is April 15. But the deadline was pushed to April 18 because April 15 falls on a Saturday.
So why not April 17? Because Emancipation Day, a holiday in Washington, D.C., where the IRS is located, takes place Monday, April 17.
California storm victims have until May 15 to file their federal individual and business tax returns and make tax payments. You can find more information about eligibility in this IRS news release.
If that extension doesn’t apply to you, you need to e-file or postmark your individual tax return by midnight April 18.
Pro Tip
The fastest way to get your tax refund is to file electronically and choose direct deposit.
What Filing Form Should I Use?
You’ll need to use Form 1040 and pay any taxes you might owe.
In the past, taxpayers could choose from two other forms — 1040EZ and 1040-A, but those forms were phased out in 2019 following an IRS overhaul of 1040.
So, that simplifies things. You no longer need to worry about picking the right tax form. Just file Form 1040 plus any schedules that apply.
If you’re using tax preparation software, like TurboTax, it will walk you through the entire tax filing process. The software will help you fill out all the fields and suggest whether you should itemize or take the standard deduction. (Most Americans go for the standard deduction).
Be Prepared for a Smaller Refund
Many taxpayers enjoyed robust tax refunds the last two years, thanks to several measures rolled out during the pandemic.
However, the IRS is warning taxpayers that refunds may be smaller in 2023 as tax credits return to 2019 levels.
These changes will especially affect people who claim the Child Tax Credit, Earned Income Tax Credit and the Child and Dependent Care Credit.
Filers who received $3,600 per dependent in tax year 2021 for the Child Tax Credit will, if still eligible, receive $2,000 for the 2022 tax year.
For the Earned Income Tax Credit, eligible taxpayers with no children who received roughly $1,500 in tax year 2021 will now get $500.
Another pandemic-era exception is also going away: Above-the-line charitable donations.
During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their returns — even if they didn’t itemize.
That’s going away. If you’re like most Americans and take the standard deduction, donating to nonprofits won’t boost your refund or lower your tax bill like it did the last two years.
3 More Tax Deadlines that Land on April 18
Besides filing your individual return, you need to do these things by the April 18 deadline:
1. File an Extension
Need more time to file your taxes? You need to file for an extension by April 18.
You can find out more information about how to request an extension on the IRS’ website.
Reasons for extensions include emergencies, extended vacations, overloaded work schedules and utter unpreparedness.
The extension runs six months. If you opt for this, you’ll need to mark Oct. 16, 2023 on your calendar. That’s your new deadline.
While an extension gives you more time to file your tax return, your tax bill is still due on April 18, 2023.
2. File Your Estimated Taxes
For the self-employed: You’re required to pay estimated taxes every quarter.
You must file these four times a year: The last payment for the 2022 tax year is due on Jan. 17.
The first payment for the 2023 tax year is due April 18, followed by other payments on June 15, Sept. 15 and Jan. 16, 2024.
The IRS is gearing up for another tax season amid a slew of challenges, according to a new report. Most pressing is the need to upgrade its “antiquated” systems and hire more workers to provide better service, a watchdog group within the IRS found. Yet the agency’s leadership also faces another test: repelling the latest attacks by Republican lawmakers, some of whom are pushing to abolish it altogether.
For taxpayers, meanwhile, the main issues as ever are likely to be getting their refunds on time and reaching a human being at the IRS when they need help. And that, too, could prove difficult after three years of pandemic-induced delays and glitches, according to National Taxpayer Advocate Erin Collins, who this week released her annual report to Congress.
“During the last three years, we have lived through a period of ‘All COVID-19, all the time’ in tax administration, just as we have in our personal lives, communities and jobs,” she wrote. “These challenges continued to impact taxpayers significantly during 2022 and will carry over into 2023.”
“Sunlight” ahead?
But there is some good news as well, Collins said. For one, the IRS will start the current tax season with a smaller backlog than a year ago, although at 10 million unprocessed returns, the agency still has a considerable amount of catching up to do, her report says.
“We have begun to see light at the end of the tunnel,” Collins wrote in the report. “I am just not sure how much further we need to travel before we see sunlight.”
Some relief may be in sight for taxpayers as the Inflation Reduction Act (IRA) last year directed $80 billion in new funding for the IRS to upgrade its technology and hire more workers, as well as to beef up enforcement against tax cheats. The idea is to improve IRS operations, while also sniffing out new revenue from wealthy taxpayers who skirt tax laws.
In an email, the IRS said it “will be carefully reviewing the annual report to Congress.”
It added, “While much work remains, the IRS is poised to deliver a better 2023 tax season for the nation with more services for taxpayers, helped by critically needed new resources provided by the Inflation Reduction Act.”
But that funding is now a target of GOP lawmakers, with House Republicans this week voting to rescind $72 billion of the $80 billion allocated to the IRS under the IRA.
On Tuesday, Rep. Earl L. “Buddy” Carter, a Republican from Georgia, introduced the Fair Tax Act, which would eliminate the federal personal and corporate income tax, the estate tax, and the payroll tax — the latter of which funds both Social Security and Medicare. Under his bill, those taxes would be replaced by a national consumption tax of 30% that would apply to all consumer purchases — health care, groceries, homes, gasoline and more.
And because much of the tax code would be eliminated, the bill would also abolish the IRS.
Real issues
To be sure, both bills have little hope of advancing given the Democrats’ control of the Senate. But the efforts speak to the long-term political headwinds facing the IRS, which could have greater ramifications for the agency if Republicans later gain control of Congress.
Some Republican lawmakers continue to echo a claim that the $80 billion in new IRS funding would be used “to hire 87,000 new agents to target working families,” as Congressman Jason Smith, a Republican from Missouri who this week was selected as chairman of the powerful House Ways and Means Committee, said in a January 9 statement.
Those claims have been dismissed by experts as misleading because much of the IRS’ new funding would be tapped to hire customer service agents and tax workers who could help answer questions and speed the agency’s handling of returns. New auditors would also be hired, but the Biden administration has said they would mostly focus their scrutiny on people earning $400,000 or more — not middle- or working-class Americans.
In the meantime, the IRS is facing very real problems, although largely internal ones. The issues flagged by the National Taxpayer Advocate touch on the daily headaches currently facing taxpayers, such as delayed refunds, calls to the IRS that go unanswered, and a website that is confusing and difficult to use.
Top 10 IRS problems
In the new report, the National Taxpayer Advocate outlined the 10 biggest problems at the IRS, all of which may impact taxpayers on a day-to-day basis.
At the top of the list are processing delays, with millions of taxpayers seeing their returns caught in limbo. In some cases, the delays were due to the agency’s struggle to cope with paper returns, which must be manually entered into its computers. People who were victims of identity theft, meanwhile, had a typical delay of a full year to receive their refunds, Collins wrote.
These delays led to “widespread taxpayer frustration and both individual and business financial hardships for millions of taxpayers,” she noted.
However, Collins said the IRA’s $80 billion in funding may help the agency upgrade its technology and reduce processing time. For instance, the bill directs $4.8 billion to modernize the agency’s IT systems, which could be used to buy scanning technology so that paper returns don’t have to be entered by hand.
Here are the top 10 problems, as outlined in Collins’ report:
Delays processing tax returns.
Tax code complexity: Collins said byzantine laws create a “costly and time-consuming” process for taxpayers.
IRS hiring and training: The IRS budget has shrunk by 15% in the last decade, leading to staffing levels last seen in the 1970s and creating declines in service quality.
Telephone and in-person service: Only 1 in 10 calls got through to an IRS agent in fiscal year 2021.
Online access for taxpayers and tax professionals: Collins said the IRS websites lack functionality.
E-file and free file: The report notes that not all IRS forms are compatible with e-filing, which means some taxpayers are forced to file paper returns, leading to processing delays.
IRS transparency: Collins dings the IRS for failing to provide taxpayers with basic information, such as why their refund was delayed.
Return preparer oversight: The report noted that taxpayers are frequently harmed by non-credentialed return preparers.
Appeals: Taxpayers who want the IRS Independent Office of Appeals to review their case have an average wait of a year.
Overseas taxpayers: Americans who live abroad face a number of hurdles to file their taxes, such as barriers for e-filing.
“While much work remains, the IRS is poised to deliver a better 2023 tax season for the nation — with more services for taxpayers, helped by critically needed new resources provided by the Inflation Reduction Act,” the IRS told CBS MoneyWatch in an email.
Simplifying the tax code?
One thing Collins and anti-IRS lawmakers appear to agree on is that the nation’s tax code is overly complex. Its intricacy is one reason Rep. Carter argues a flat consumption tax would benefit Americans simply by whittling down the tax code. He also argues a flat tax would “encourage growth and innovation.”
However, tax experts have long pointed out that sales taxes eat away at the incomes of the poor and working class far more than the rich because lower-income households spend most of their paychecks on goods and services. The wealthy, meanwhile, spend a smaller share of their income, making it easier for them to sock away money in savings and investments.
There could be other hidden costs, according to the left-leaning Institute on Taxation and Economic Policy. For instance, the consumption tax would eliminate the tax credits that many Americans receive when buying health insurance through the Affordable Care Act’s marketplaces. They would also face a new tax of 30% on their health insurance premiums, it noted.
Republicans “are gearing up to vote on the so-called Fair Tax Act, which would eliminate the federal income tax and instead make everyone pay a flat 30% sales tax,” noted Frank Clemente, executive director of the tax advocacy group Americans for Tax Fairness, told CBS MoneyWatch. “So billionaires will pay the same share of taxes as working families.”
A 1099 form is a document that businesses use to report various types of government payments to both the IRS and payees.
LPETTET | Getty Images
This includes payments for services, dividends, interest, rents, royalties, and other types of income. There are various 1099 forms, each with specific instructions for filling them out.
If you’re an entrepreneur or small business owner who wants to stay compliant with the IRS, it’s critical to understand what a 1099 form is and how it applies to your business. Read on for an overview of the different types of 1099 forms and how to navigate the filing process.
What is a 1099 form, and what is it used for?
A 1099 form is an information return that reports taxable income other than wages, salary, and tips.
For example, if you’re self-employed or earn rental income, you’ll likely receive a 1099 form.
The 1099 form reports what’s referred to as miscellaneous income, and there are many different types of 1099s.
Here’s a quick run-through of some of the other common 1099 forms and what they report:
Form 1099-B: Proceeds from broker transactions
Form 1099-C:Cancellation of debt
Form 1099-DIV: Dividends and distributions from investments
Form 1099-H: Health insurance premiums that the taxpayer pays
Form 1099-INT:Interest income earned throughout the year
Form 1099-K: Merchant card and third-party payment transactions
Form 1099-NEC:Nonemployee compensation
Form 1099-Q: Distributions from qualified education programs
Form 1099-R: Distributions from pensions or annuities
Form 1099-S: Proceeds from real estate transactions
Form 1099-SA:Distributions from health savings accounts (HSA)
All that said, the most common type is the 1099-MISC, used to report income earned from rental property, providing services as an independent contractor, or earning royalties. If you receive a Form 1099-MISC, you’re considered self-employed (an important fact to remember).
While this may seem like a lot of extra work, being self-employed has some benefits, such as the possibility of deducting business expenses on your tax return.
Be sure to speak with a qualified tax professional if you have questions about filing your taxes after receiving a 1099 form.
A 1099 form is not the same as an income tax return. It’s an informational form that reports specific types of income and other financial activities. Essentially, you use the information from the 1099 forms to complete your taxes.
The Internal Revenue Service (IRS) requires businesses to file 1099 forms for almost any payment over $600 made throughout the year. That includes payments for services, mortgage interest, royalties, and other miscellaneous income.
The payee doesn’t need to issue a 1099 form for any payments under $600; nonetheless, both the issuer and recipient must report this income on their tax returns.
A 1099 is an IRS form that shows an individual’s income from specific types of payments.
A Form W-2 is a tax form that reports the wages an individual has received.
The primary difference is that 1099 forms are issued to non-employees, whereas W-2 forms are issued to employees. Businesses are responsible for reporting employee wages on W-2 forms, while self-employed individuals (think freelancers and independent contractors) must report payments outlined on their 1099s.
Additionally, self-employed individuals may receive 1099s and W-2s, depending on the work they perform.
Generally, W-2 forms report wages from full-time employment or an employer/employee relationship, whereas 1099 forms report income from freelance work, contract labor, royalties, or rent payments.
Unlike 1099s, W-2 forms withhold federal income taxes (and state taxes) from employees’ wages. Therefore, individuals need to note whether their income was reported as a W-2 or 1099 to know what taxes they must pay.
A 1099 form reports income from freelance work, rentals, investments, and other alternative sources. In most instances, if you earned more than $600 from any of these sources during the year, the person who paid you must send you a 1099 form by January 31st. You will then use this form to complete your taxes.
When reporting your income on your taxes, use the correct 1099 form.
For example, if you received payment from freelancing, you should generally fill out a 1099-MISC.
Note that you’re responsible for paying taxes on all of your income, regardless of whether or not you receive a 1099 form.
Speak to a tax professional if you have any questions about whether or not you need to file a 1099 form. They can guide you through all the reporting requirements and help keep you above board.
For businesses, 1099 forms are due by January 31st of the year following the calendar year when payments were made. This applies both to copies to be sent to contractors and the IRS.
For individuals, 1099 forms must be received by January 31st, following the calendar year during which payments were made. All relevant 1099 forms should be reported on individuals’ tax returns by April 15th of the same year.
If an individual does not receive a 1099 form from a business or other payer, they should still report the income on their tax return. Individuals should keep track of their income throughout the year in case 1099 forms are not provided.
Failure to meet these deadlines can result in expensive penalties. Businesses that fail to file 1099 forms on time face a minimum penalty of $50 per form, with a maximum of $290 per year. The specific penalty depends on the form type and the time passed after the deadline.
The IRS can also impose additional penalties for what it finds as intentional or negligent filing errors.
How do I file a 1099 form with the IRS?
If you’re an independent contractor or self-employed individual, you’ll need to file a 1099 form with the IRS come tax time.
Here are three things to know about 1099 forms and how to file them with the IRS:
1. A 1099 form reports income not subject to withholding tax.
This includes interest, dividends, royalties, and payments made in exchange for services (including rent, commissions, fees, and tips). The payer of this income should send a 1099 form to both the payee and the IRS.
2. There are many types of 1099 forms (more than 15), each for a different type of income.
The most common is the 1099-MISC, used to inform the IRS of miscellaneous income. You would file a 1099-MISC if you received income such as rental income or freelancing income during the year. Other common 1099 forms include the 1099-INT (for interest income) and the 1099-DIV (for dividend income).
3. When it comes time to file your taxes, you’ll need to include your 1099 forms with your return.
You’ll also need to send a copy of each form to the IRS, so be proactive about keeping the informational report handy.
Here are some tips for filing your 1099 forms correctly:
Review each form you receive and make sure the information is accurate.
Choose the correct filing method, whether direct entry, paper filing, or digital e-filing.
Double-check your work to ensure all your forms are filled out completely and accurately.
File your forms with the IRS and report them on your tax return by the deadline.
Correctly filing your 1099 form is essential for ensuring that you comply with the IRS and local tax agencies. It also helps to protect you from any potential penalties and audits.
Common mistakes people make when filing 1099 forms
Perhaps the most common mistake is failing to report all the income they receive. While this can be fraudulently intentional, unintentional misreporting can happen if you forget to include income from a side gig, lottery winning, or receive cash payments instead of a check or money order.
If you don’t know whether to report a specific type of income, it’s generally best to err on the side of caution and include it. Otherwise, you could face IRS penalties or miss out on potential tax credits.
Another common mistake made on the business end is incorrectly reporting the taxpayer identification number (TIN) of the person or business you paid. The TIN can be either a Social Security number (SSN) or an employer identification number (EIN).
If you report an incorrect TIN, the IRS might flag the return as inaccurate and send you a notice asking for clarification. As such, you always want to double-check the TIN before filing your return.
Lastly, some taxpayers fail to file their 1099 forms (and other information returns) by the established deadline. The deadline for paper filings is February 28th, and the deadline for electronic filings is March 31st.
If you miss the deadline, you may be subject to late fees and interest charges from the IRS. By avoiding these mistakes, you can ensure that your 1099 filing process goes smoothly (or at least increase the chances of a smooth process).
Are there penalties for not filing a 1099 form on time or incorrectly filing one?
The IRS imposes various penalties for businesses that fail to file 1099 forms on time or file them incorrectly. Perhaps the most significant penalty is the failure-to-file penalty, assessed at a rate of 0.5 percent of unpaid taxes per month; a business will be subject to this penalty if it fails to file a 1099 form within 30 days of the due date.
Moreover, if a business files a 1099 form more than 60 days after the due date, the penalty can increase to $435 per form.
In addition to the failure-to-file penalty, businesses may also be subject to a failure-to-pay penalty if they don’t pay the amounts shown on the 1099 forms by the due date. This penalty is equal to two percent of the unpaid tax liability and accrues monthly until the total amount gets paid.
Finally, businesses may be subject to interest charges on any unpaid taxes.
How can I get help if I’m having trouble filing my 1099 form correctly?
If you struggle to fill out or file your 1099 form correctly, there are a few places to turn for help.
IRS website
The IRS website has a wealth of helpful resources to answer most tax filing questions.
You can call them if you can’t find what you’re looking for on the website. They have customer service representatives who can help answer your questions and get you on the right track.
Remember that IRS employees and those who work for other financial institutions are often overwhelmed with calls, especially during tax season, so you may need to plan for long wait times.
Tax professionals
Another great resource is your tax preparer or accountant. They can guide you through each step of the process and ensure everything is filed correctly.
Your tax professional can also help you get the maximum amount on your tax refund. If you don’t have a tax preparer or accountant to rely on, make it a priority to find one as soon as possible.
Tax filing software
Finally, there are many software programs available that can help you file your taxes. These programs can walk you through the process in an easy-to-use interface.
If you’re overwhelmed by the different options on the market, read online reviews highlighting each product’s features and costs. Then, choose the best tax software for your needs and budget.
Getting help with your 1099 form can be easy, whichever route you choose. Research the plethora of resources available to help you get everything filed correctly and on time.
Ready to file a 1099 form?
1099 forms are important documents for both the IRS and taxpayers. Businesses and individuals should understand who needs to file them, when they are due, and how to get help filing them correctly.
Filing deadlines are strict, so it’s best to start gathering your information early and contact a tax professional if you have any questions.
If you’ve had “sit down and do my taxes” on your to-do list for a little while, we’ve been there — tax season is not exactly something to look forward to each year.
If anything, it’s something most of us dread, wondering how to put everything together, how the rules have changed since last year, and perhaps most importantly, which digital DIY tax filing service we should use.
And if your response to that is, “Wait, there are services that could help me online?,” then this article is most definitely for you. DIY tax filing services like TurboTax, H&R Block, Cash App Taxes and TaxSlayer help you figure out what forms you need and guide you through the process—often for free.
In this article, we’re going to review TurboTax’s online filing services and tax software and see how it compares to the competition.
TurboTax: How Does It Work?
Perhaps the best-known of the digital filing options, TurboTax is the tax-focused baby of Intuit, the same company behind Mint and Quickbooks.
TurboTax is a perfect option for the taxpayer who wants everything from a full-service expert doing their taxes to someone who simply wants to use the guided software to input information on their own. The service even offers a free option that means you’ll pay nothing to file state and federal taxes — that is, if you’re filing a simple tax return, meaning one using only the IRS Form 1040.
And if you prefer things a little more low-fi, then you may want to invest instead in the TurboTax CD/download, which allows you to install the software on your computer. The cost of the Deluxe (and more) CD includes the tax preparation fee for one state and five federal e-filings, although you can prepare and print unlimited federal tax returns. (Although who wants to think about unlimited tax fillings?)
As you can see, TurboTax offers much to choose from and has four main pricing tiers, as of December 2022. Here’s a little more about how much they cost and what they offer.
Free Edition
The idea of free tax filing software sounds too good to be true, and that’s because it is — kind of. TurboTax’s free edition is great for those who only need to cover W-2 income, the Earned Income Tax Credit (EIC) and child tax credits. You can also import your hobby, personal property rental or personal item sales income from your Form 1099-K. But if your taxes include other categories, you may want to consider something a little more advanced.
Cost: $0
Deluxe
The Deluxe edition is the right choice for the person who doesn’t want to shell out that much more but wants help finding all the possible tax credits for them. The Deluxe TurboTax helps you search more than 350 tax deductions and credits to find the ones that fit for you. That includes homeowner tax breaks, charitable donations plus mortgage and property tax deductions. If you have additional education expenses or tax credits for dependents, you might want to go ahead and invest in Deluxe. This is also helpful when it comes to 1099-MISC income — i.e. earnings of an independent contractor like a freelance writer or Uber driver.
But if freelance work is your sole source of income, you’ll be better off using the TurboTax Self-Employed edition, which is described below.
Cost: $39 for federal filing, plus $39 per state
Premier
If you’re someone who has additional income from investments and rental property, then you may want to upgrade to the Premier version of TurboTax. You’ll get everything in Deluxe, as well as the ability to automatically import transactions from financial institutions, including stock and crypto activity, and look for more than 450 relevant tax deductions and credits. The system will also help you to note your gains and losses from crypto, if that’s a concern.
Cost: $69 for federal filing, plus $39 per state
Self-Employed
If the bulk of your income comes from a self-employed post, like online sales or professional services, then you may want to consider TurboTax Self-Employed. It works for industry-specific deductions and offers guidance for freelancers, independent contractors and small business owners.
You’ll also get the ability to upload your 1099-MISC forms with your phone and an audit assessment. TurboTax guarantees your maximum tax refund.
Cost: $89 for federal filing, plus $39 per state
Aileen Perilla/ The Penny Hoarder
TurboTax Live
For each of the products above, TurboTax lets you upgrade to TurboTax Live to get on-demand answers and a line-by-line review of your taxes by a tax expert — CPA or EA.
Cost: TurboTax Live comes in tiers similar to its DIY products:
Basic costs $0, including free state filing.
Deluxe costs $89, plus $49 for state filing.
Premier costs $139, plus $49 for state filing.
Self-Employed costs $169, plus $49 for state filing.
Features
No matter which tier works best for you — and there’s an easy, clickable questionnaire that helps you figure out the right product based on your tax situation — all TurboTax customers get access to a wide range of tools, guarantees and features.
Audit Support Guarantee
Say you’ve done your taxes through TurboTax and end up receiving an audit letter from the U.S. Internal Revenue Service. Here’s where the system’s Audit Support Guarantee comes in.
TurboTax will offer one-on-one support with a tax professional, through their Audit Support Center. This, however, does not mean that an expert from TurboTax will represent you in front of any tax authority. If the service cannot connect you with a tax professional, you will get refunded the purchase price—and even Free Edition users get a payment of $30.
Money-Back Maximum Refund Guarantee
TurboTax promises you the maximum tax refund — guaranteed. That means that if you find a bigger refund or smaller overall tax payment from another method, they will refund you the price you paid for access to their programs. (Again, free users can get up to $30.)
Mobile Apps for Apple and Android
If you’re someone who likes to do things on the go, you can even file your taxes through an app. TurboTax has options for both Apple and Android users. (Keep in mind—you may want to file them online so you can sit down and really go through your taxes.)
Refund Advance
One of TurboTax’s most unusual features may be the refund advance option of up to $4,000 with no loan fees, no credit impact and 0% APR. A few eligibility barriers apply: you’ll have to have a refund of at least $500 and can’t live in North Carolina, Connecticut or Illinois, for example.
But if you can apply, you could get the funds in as fast as a minute after the IRS accepts your tax return. You’ll have to get them by opening a checking account with Credit Karma Money and can, once accepted, almost immediately use your Credit Karma Money virtual debit card loaded up with the funds from your return. If you prefer to get your funds in direct deposit or a paper check, that will take 21 days or 28 to 42 days, respectively. It’s important to note that you’ll get about half of the actual refund you’re entitled to — for example, if your refund falls between $500 and $999, you’ll get $250.
Once the IRS distributes the rest of your return, you’ll receive the rest of the money into the Credit Karma Money checking account you’ve already opened.
Pay-With-My-Refund Options
If you anticipate having a high refund and want to pay for TurboTax with your refund instead of your bank account, that can be done. This service often comes with a charge—generally, users say they’ve paid $39.99. To do this, you’ll have to e-file your return and direct deposit your refund into a single account. It can only be used once.
Aileen Perilla/ The Penny Hoarder
Fees
To prepare and file your tax returns through TurboTax, you’ll pay a fee for the filing program or software, plus additional fees to file your state return. Here’s how that looks:
DIY online filing: Free to $89, depending on tier.
State filing fees: Additional $0 for free filing, $39 per state for paid DIY tiers, $49 per state for paid Live tiers.
TurboTax Live: Free to $169, depending on tier.
If you owe taxes after you file, you can pay with credit card or debit card through payment processors recommended by TurboTax. This generally comes with a fee between $2 and $4 per transaction for a debit card.
You can also use an electronic funds withdrawal to pay directly from your bank account—that is, if you’re e-filing your taxes. This is an option not all competitors offer; with other tax services, you’d have to go directly to the IRS to pay this way.
TurboTax: Pros and Cons
Now that we’ve laid out the basics of TurboTax’s features, what’s the verdict on its performance? Like all financial products and services, there are both pros and cons to using TurboTax.
Pros
Affordable: TurboTax’s tiers clock in at a lower price than similar tiers from competitors — though its free DIY service doesn’t cover as many filers as other options.
Ease of use: Filing with TurboTax is pretty comprehensive and user-friendly, according to user reviews. Its technology simplifies the process.
Comprehensive: The company has a product available for just about every filer, no matter your income or tax situation, or how hands-on or hands-off you want to be.
Customer service: TurboTax offers lots of support, including links to extensive support topics, as well as a community forum that lets you interact with other filers and tax experts.
Cons
Overwhelming user experience: TurboTax is super customizable, but sifting through its many product options can feel kind of overwhelming.
Lack of transparency: Your total TurboTax fees aren’t totally clear until you go through the tax prep process. That could mean wasted time if you end up wanting to look for a cheaper option.
No physical locations: TurboTax doesn’t offer in-person, brick-and-mortar offices like H&R Block. If face-to-face, personalized service is important to you, this isn’t your best option.
Who Is TurboTax Best For?
When it comes right down to it, most online tax preparation services are more alike than they are different.
TurboTax may be best for someone who wants custom tax help without going into an office and dealing with a live person. It’s also a good option if you’re looking for a truly fee-free line of advance tax credit so you can access your money ASAP.
Remember, you can always file for free, if you’re eligible, through the IRS portal. This service is available to filers who earned $73,000 or less in 2022, and the page also links to free fillable forms for earners at all levels.
Still comparison shopping? Check out our reviews of H&R Block and TaxAct before you make a decision.
Writer Elizabeth Djinis is a contributor to The Penny Hoarder, often writing about selling goods online through social platforms. Her work has appeared in Teen Vogue, Smithsonian Magazine and the Tampa Bay Times.
But before getting too far into 2023, it’s a good idea to take stock of how your finances may have changed during the last 12 months and make any needed adjustments.
Here are five areas of your finances to check on so you don’t get any unpleasant surprises this year.
5 Financial Surprises (the Bad Kind) to Avoid in 2023
Higher Interest Rates
The Federal Reserve raised interest rates seven times in 2022, and additional hikes are expected in 2023. That means carrying a credit card balance is about to become more costly. It also means you can expect a higher monthly payment if you buy a home or car in the new year.
Consider that the average 30-year mortgage rate on Dec. 20, 2022 was 6.47%, up from 3.25% at the end of 2021. On a home with a $350,000 mortgage, that translates to a monthly payment of $2,205 vs. $1,523 a year ago.
If you’ve got credit card debt (or any other debt with a variable interest rate), prioritize paying it off, as you can expect your debt to get more expensive. And if you’re buying a home or making another major purchase that requires financing, be sure to factor those higher rates into your budget. You probably can’t afford as much house as you could have a year or two ago, when interest rates were nearly zero.
Social Security Taxes
For retirees, first some good news: Social Security payments are getting their biggest cost of living increase since 1981. That raise is especially sweet because Medicare Part B premiums will drop slightly, meaning seniors can hang onto more of their Social Security checks.
The downside of fatter Social Security checks: Some recipients could end up with an unexpected tax bill. Social Security benefits are taxed at the following rates:
50% of your Social Security benefits are taxable if:
Half of your benefits + other income = $25,000 to $34,000 (singles filers) or $32,000 to $44,000 (married couples filing jointly).
85% of your Social Security benefits are taxable if:
Half of your benefits + other income = $34,000 or more (single filers) or $44,000 or more (married couples filing jointly).
If Social Security benefits are your only source of income, it’s unlikely that you’ll owe taxes. But if your higher benefit in 2023 will push your income above the thresholds listed above, start planning for your tax bill now.
Missed Student Loan Payments
If you’ve been taking advantage of student loan forbearance since March 2020 — when all payments and interest on federally held student loans were suspended — be prepared to start making payments again.
If you’re on the standard repayment plan and are unable to make the payments, apply for an income-driven repayment plan, which could substantially reduce your monthly payments when the forbearance period ends. If you’re already on an income-driven plan, update your income to modify your monthly payment.
Overdraft Fees
Overdraft fees are among the most criticized fees assessed by banks, since those who live paycheck to paycheck are the ones likely to accidentally overdraft.
The goods is that a number of institutions eliminated their overdraft fees, including Ally Bank, Alliant Credit Union and Capital One.
In 2022, Bank of America announced it’s slashing overdraft fees from $35 to $10 and intends to drop bounced check fees. Wells Fargo said that it will give customers 24 hours to make good on overdrafts, although it hasn’t budged on the $35 overdraft penalty.
What does that mean for you? If you’re banking at a place that’s socking you with fees, then maybe 2023 should be the year you find a new bank — here’s a rundown of those fee changes, plus a list of banks that don’t charge overdraft fees at all.
Widespread Uncertainty
A growing number of economists are now predicting a recession in 2023, with those polled for Bankrate’s Third-Quarter Economic Indicator pegging the odds of a recession in the next 12 to 18 months at 65%.
An emergency fund is the best way to safeguard yourself against a recession. Ideally, you’d have enough to pay for six months’ worth of necessities, but amassing this much cash can take years. Even if you’re able to stash away enough to live off of for a month or two, that will provide a valuable safety net.
Because the stock market is volatile, this is money you should keep in an FDIC-insured bank account, rather than investing it. The silver lining of those higher interest rates: Some high-yield savings accounts are now paying annual percentage yields (APYs) above 3%.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
There is a lot to know when it comes to filing taxes. Our complete guide for the 2022 tax year (filing in 2023) should help. Ibuprofen sold separately.
How Much Do You Have to Make to File Taxes?
Making more money is, in almost every way, a good thing. But it’s also true that the more money you make, the more taxes you’re required to pay — at least up to a point.
On the opposite end of the spectrum, you may be exempt from filing a federal income tax return if you don’t meet the IRS income threshold, which can change.
2022 Tax Year
You need to file a 2022 federal tax return by April 18, 2023, if your income exceeded the amounts listed below. The traditional tax deadline is April 15, but because it falls on a Saturday, the IRS extends the deadline to the next business day. Monday, April 17, is Emancipation Day, giving filers until Tuesday, April 18, to submit their returns.
Single tax filers or married filing separate tax returns
$12,950 if you’re under 65.
$14,700 if you’re 65 or older.
Married filing jointly
$25,900 if both spouses are younger than 65.
$27,300 if one spouse is younger than 65 and the other spouse is 65 or older.
$28,700 if both spouses are 65 or older.
Head of household
$19,400 if you’re under 65.
$20,800 if you’re 65 or older.
Qualifying widow or widower with a dependent child:
$25,900 if you’re under 65.
$27,300 if you’re 65 or older.
The best way to determine whether or not you need to file a tax return is to use the IRS’s free online tool, which takes about 12 minutes to get a definitive answer.
Pro Tip
Even if you won’t owe taxes, it’s a good idea to file. You may even qualify for the Earned Income Tax Credit, meaning you could pocket cash from the IRS. But you only get it if you file.
How Are Your Taxes Calculated?
All right, so you’ve successfully determined whether you’re required to file a federal tax return.
Now for the real fun: figuring out exactly how much you owe — or are owed.
Your taxes are calculated based on a range of personal details, like how much money you made in a given tax year, how much you’ve already paid in taxes, your marital status and how many dependents you have.
Your federal income tax is determined according to income brackets, which scale up in percentage as your overall income increases. For 2022 (filing in 2023) and 2023 (filing in 2024), there are seven federal income tax brackets, ranging from 10% to 37% of your income. Unmarried and married individuals (and heads of household) have different levels of taxable income that determine their tax brackets.
Along with federal income taxes and your contributions to Social Security and Medicare, you’ll also be responsible for state and local taxes. Each year, you must file a state tax return, unless you live in one of the nine states that don’t levy them. Those states are:
Alaska
Florida
Nevada
New Hampshire*
South Dakota
Tennessee
Texas
Washington
Wyoming
*New Hampshire does not have traditional income taxes on W-2 wages, but the state does assess a small tax on dividends and interest, though this is set to phase out in 2027.
The other states’ rates run from as much as 13.3% (California) to as little as 3.07% (Pennsylvania) and may vary by income or be assessed at a flat rate.
Note: States without income tax typically make up for it in higher sales tax rates, especially for items like tobacco and alcohol. Tennessee charges the most with a statewide 7% sales tax. Louisiana has a 4.45% sales tax, but individual localities can tack on as much as 7% more for a total of 11.45%.
Depending on where you live, you might also have to contend with local taxes and even school district taxes. Some cities only have one, but some homeowners might find they are double-taxed: once by their town and once by their school district, even if they don’t have kids attending.
Deductions and Credits
You may be eligible for certain tax deductions, such as student loan interest payments. Tax deductions can add up and cut a nice chunk off of what you’d otherwise owe to the IRS, sometimes substantially increasing your refund by reducing your total taxable income.
This is especially true if you’re a freelancer, in which case you may be able to take a home office deduction.
Note: With more people working at home because of the pandemic, there may be heightened interest in this. Check with a tax advisor but know that if you are employed and received a W-2 but are working from home, you probably can’t claim a deduction. The home office deduction is generally reserved for self-employed or gig workers.
You could also deduct the interest paid on your mortgage, charitable donations and more. Or, it may be in your best interest to take the standard deduction, which, for 2022, is a pretty generous $12,950 for single filers ($19,400 for heads of household or $25,900 for those married and filing jointly).
There are also certain tax credits you may be eligible for, such as the American Opportunity Credit, which offers eligible students up to $2,500 per year to offset college expenses, or the Child Care Credit, which offers eligible guardians up to $2,000 apiece to offset the expense of supporting a dependent.
Tax credits differ from deductions: While a tax deduction reduces your income subject to taxes, a tax credit reduces what you owe the government, dollar for dollar.
Doing the Math
If you’re a first-time tax filer, chances are your situation won’t be too complex. You’ll likely be able to get away with the simplest version of IRS Form 1040.
This document uses information about your income, withheld taxes, marital status and dependents to determine whether you’ll be writing or receiving a check.
Most people will fill this out using their W-2 as a guideline, which is a document issued by your employer.
Your W-2 lists your total earned wages and withholdings, including federal income tax, Medicare and Social Security. It’s distributed by employers no later than Jan. 31, and these days, the documents are often sent digitally.
The self-employed person’s equivalent of a W-2 is a 1099, although these documents don’t include information on tax withholding — because independent contractors are responsible for doing that themselves. Contractors should be paying quarterly estimated taxes to Uncle Sam to avoid any fines come tax season. More on this below.
The more complicated your financial landscape is, the more complicated your filing will be, and the more forms you’ll need to add to your pile.
For example, if you have additional sources of income through capital gains, unemployment compensation, gambling or prizes, you’ll need to file a Schedule 1 along with your 1040.
There are also additional forms for those who owe self-employment tax or can claim a refundable credit. (The IRS helpfully lists some of the most common additional filing scenarios, and the necessary documents, on its “About Form 1040” page.)
Of course, dragging out your calculator and working out your tax burden longhand is only simple in theory, even under the most straightforward circumstances — which is why many people turn to tax filing software or professional services to help make taxes less of a chore. These costs range from a few bucks on a digital filing upgrade to putting an accountant on retainer.
If you are worried about making mistakes while filing or if your tax situation is any more complicated than a basic W-2, we highly recommend using tax software like TurboTax. And if your scenario is exceedingly complex for even tax preparation software, consider an actual accountant, who can help not just with your federal tax return but also your state and local tax returns.
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How to File Your Taxes
Now that you’ve got the hard part out of the way, it’s time to put away the calculator and actually file your income tax return. You’ve got a number of options, some of which are more convenient (and costly) than others.
You may:
E-File Using the IRS Free File Tool
The Free File tool is a good option for those with relatively straightforward taxes, especially if your adjusted gross income is less than $73,000. You receive guided tax preparation and free federal filing — and sometimes state, depending on where you live. (Those with an adjusted gross income of more than $73,000 can still use the Free File tool, but you won’t receive any guidance, and state tax prep is not available.) If your adjusted gross income is higher than the cut off, we recommend foregoing Free File and instead opting for tax software like TurboTax or an actual accountant.
You can use the IRS Free File option online with guided tax preparation, or you can use Free File at an IRS partner site (TurboTax and H&R Block famously dropped out of the program in 2020). Note that you cannot begin the Free File process on an IRS partner site; begin the process at IRS.gov to qualify. You can also try Free File at home, with pen and paper, using the Free File Fillable Forms (say that five times fast).
You cannot use Free File to complete a prior year tax return.
E-File Using a Private Tax Preparation Software
Some of the most common tax filing software options include TurboTax, TaxAct, and H&R Block. Most of these tax preparation services offer a free file option (though TurboTax and H&R Block no longer participate in the IRS Free File program), and they make the process super simple: Just fill out some forms, click some buttons, and your tax is sent.
The free file service goes for basic federal and state taxes. This makes it more comprehensive than the IRS tool, but if you have to file a local tax return, you’re still on your own for that. And if your financial situation is more complex — for example, income including mortgage interest or rental property profit — you may have to move into a paid tier. Be prepared to pay extra as well if you’d like tax advice from an actual professional.
A caveat: Most customers begin using a service like TurboTax after hearing it’s free, but TurboTax and similar tax software are only truly free for a handful of customers with very basic tax returns. The moment you introduce some complexity into your federal tax return, these tax preparation services will start adding dollar signs to your total.
Old-School Using Paper Tax Filing
That’s right: You can still send actual, hand-filled-out paper forms to the IRS in the mail. Paper tax filing is pretty cheap, of course, but it’s also an easy way to make errors on your return if you’re not a tax wizard. But if you’re confident in your calculator-fu, here’s the full list of IRS mailing addresses by state.
Keep in mind that the IRS has had a huge backlog of paper returns ever since COVID-19 and openly discourages paper filing on its website. Many people waited months to get their tax refund in recent years, whereas over 90% of returns filed online are processed within 21 days.
Hire a Professional Tax Preparer
Although it’s easily the most expensive move on this list, using a tax preparer is also the least stressful — and if you make enough to cover it without too much budgetary shuffling, it might just be worthwhile. A certified accountant or tax preparer can ensure you get the most generous refund possible (they’ll chase down every tax credit and tax deduction possible) and can offer tax advice along every step of the journey. Should you get audited for a year that you sought professional help, that firm can step in and assist. And best of all, your calculator can stay firmly ensconced in its layer of dust.
Tax preparation fees can vary based on the complexity of your situation (and number and types of forms involved) and on your location; in general, tax preparation fees for basic filing average a little over $200.
If You Owe Money
If you owe taxes, you can pay through the digital system via direct transfer from your bank account or by credit card. You can also mail off a paper check to the correct address for your state.
But let’s keep the glass half full and assume the government owes you money. You can set up direct deposit to your bank account for the fastest refund, but you can also request a paper check in the mail. In recent years, refunds from federal tax returns have been delayed when paid via mail due to the ongoing pandemic; if at all possible, opt for direct deposit.
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Common Tax Mistakes — And How to Avoid Them
It’s important that you file your income taxes correctly and on time or else risk penalties. If you think you’re going to be late, you can file for an extension — but never count on it being granted.
Pro Tip
Even if you get an extension, you still have to estimate and pay your taxes by the deadline. If you suspect you’ll owe money — rather than be owed money — it’s safer just to file and pay on time.
Here are some of most common mistakes people make when filing income taxes and our advice for avoiding them:
Mistakes When Calculating
Hey, you’re not a robot. You might know your multiplication tables as well as the next guy, but we’re all human and make mistakes. And you know who doesn’t like mistakes? The IRS.
How to avoid this: Use a calculator when filing your taxes by hand. Better yet, use the IRS Free File option, let a tax preparation service like TurboTax do the calculations for you, or leave it to a tax professional with an even more sophisticated bit of software at their disposal.
Mistakes When Filing
When you file your federal income taxes, you’ll have a couple of key choices to make: 1) standard or itemized deduction and 2) filing status. Married couples in particular need to weigh the pros and cons of filing jointly or separately.
Because there can be major implications (like how and if you can contribute to tax-advantaged retirement accounts or how student loan companies with income-based payment plans will view your income), you need to really think through your filing status.
How to avoid this: A financial advisor or professional tax preparer is your best bet when making these more challenging decisions. Their software should also be able to help you see how much you’ll save with an itemized vs. standard deduction.
Personal Finance Mistakes
Don’t get too scared when you read this, but the decisions you’re making all year long can have major tax implications. Write a check to the Humane Society but forget to get a receipt? Start a new job but choose the wrong withholding status when filling out paperwork? Driving your car for a freelance gig but not correctly capturing the mileage? These are all things that could come back to bite you when you go to file your taxes.
How to avoid this: Be proactive when it comes to personal finance. Remember to keep records of all charitable giving, be aware of your proper withholding status whenever your paycheck changes (due to a new job or a raise) and be diligent about logging expenses if you run your own side gig.
Self-Employment Mistakes
If you juggle a side hustle, have a growing base of freelance clients or run your own business, you have special tax needs that, in most cases, require help from a tax professional. Mistakes for the self-employed can run the gamut, from not paying enough in estimated taxes (or not paying them at all) to not setting aside enough funds to cover what they end up owing — because of the dreaded self-employment tax.
How to avoid this: Find an accountant and ask them to help you calculate your quarterly tax payments. Most tax preparers will print vouchers for your quarterly payments with instructions on how and when to pay them. Make sure you always set aside roughly a third of any freelance income for taxes because, on top of your regular income tax burden as an employee, you’ll also have to cover the employer burden.
Pro Tip
Be sure to account for your state taxes, as well, which may need to be shipped to a different address — which you’ll find on your state’s official taxation and revenue department website.
For many filers, all this paperwork does have a silver lining: a tax refund check, just in time for summer. Or at least we hope the IRS is back on track with timely returns after the long delays of 2022.
Timothy Moore covers banks, taxes and insurance for The Penny Hoarder. Reporting from Jamie Cattanach is included in this report.
Tax time tends to look different after you retire.
You might be drawing income from multiple sources: Social Security, stock dividends, a pension, 401(k) withdrawals and even interest from your savings account.
Thankfully, several programs across the country help older adults file their tax returns for free.
4 Resources to Save Money When You File Taxes
The IRS and AARP Foundation offer in-person and virtual tax preparation and guidance at no cost to you.
Here’s how it works.
1. Tax Counseling for the Elderly (TCE)
The Tax Counseling for the Elderly Program, or TCE, provides free basic tax return preparation to people ages 60 and older. The program has been around for 45 years.
The IRS provides funding to various community organizations, such as the United Way, which administer programs at the local level.
You can rest assured your tax return is in good hands: All TCE volunteers who prepare returns are required to undergo and pass tax law training that meets or exceeds IRS standards.
You don’t need to fill out an application to receive help at a TCE site, but most locations require an appointment.
To find the nearest TCE site in your area, call 800-906-9887 or use the VITA/TCE Locator Tool.
2. Volunteer Income Tax Assistance (VITA)
Volunteer Income Tax Assistance, or VITA, from the IRS is another free resource.
It’s similar to TCE, but tax filers of all ages can get assistance through the program.
Anyone can get help through VITA, but priority is given to:
People who generally make $60,000 or less
People with disabilities
Taxpayers who speak limited English
Want to take a more hands-on approach? Several VITA locations give you the option to file your own basic federal and state tax returns using web-based tax prep software. An IRS-certified volunteer can help answer any questions you have along the way and guide you through the process.
VITA/TCE volunteers can help you file a variety of tax documents, including:
3. AARP Tax Aide
The AARP Foundation’s Tax Aide is a nationwide program providing free in-person and virtual tax preparation services.
Anyone can get assistance but the program focuses on people ages 50 and older as well as taxpayers with low to moderate incomes.
Sites are open from late January through April 15. All Tax Aide volunteers are IRS-certified. Volunteers can help assist with state tax returns as well as federal returns.
You don’t need to be an AARP member to participate in the program.
In 2022, the program helped secure over $1 million in tax refunds for more than 1.2 million people, according to the AARP Foundation.
While volunteers can help with many tax situations, they can’t assist with:
Rental property income
Farm income
Moving expenses
Casualty and theft losses
The Alternative Minimum Tax
Losses from a self-employment business
You can find an AARP Tax Aide site near you by using this locator tool.
4. IRS Free File
Taxpayers with adjusted gross incomes of $73,000 or less can qualify for IRS Free File.
The program is a partnership between the IRS and companies that provide free online tax preparation and filing software.
You can search this list to find an IRS Free File provider. Or use this Online Lookup Tool from the IRS to find a provider. (The tool goes live in January).
What Tax Documents Should I Bring With Me?
Getting important tax documents together before you file your taxes is a smart way to save time.
Each tax preparation program is a little different, but here’s a general overview of tax information you’ll need to bring with you.
Income statements, including W-2s
Form SSA-1099 for Social Security benefits
Form 1099-R for pension, IRA and/or annuity income
Form 1099-R for disability income (if applicable)
Income from other all other sources, such as 1099-INT for interest income
Mortgage statements and property tax bills if you’re a homeowner
Documents detailing contributions made to a retirement account or health savings account
Your Social Security card
Government-issued state ID or driver’s license
Tax returns from the previous two years
Any communication from the IRS
Checking or savings account information for direct deposit
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
ROME — Dubai ended its 30% tax on alcohol sales in the sheikhdom Sunday and made its required liquor licenses free to obtain, ending a long-standing source of revenue for its ruling family to apparently further boost tourism to the emirate.
The sudden New Year’s Day announcement, made by Dubai’s two state-linked alcohol retailers, came apparently from a government decree from its ruling Al Maktoum family. However, government officials did not immediately acknowledge the decision and did not respond to questions from The Associated Press.
But it follows years of loosening regulations over liquor in the sheikhdom, which now sells alcohol during daylight hours in Ramadan and began providing home delivery during the lockdowns at the start of the coronavirus pandemic.
Alcohol sales have long served as a major barometer of the economy of Dubai, a top travel destination in the UAE, home to the long-haul carrier Emirates. During the recent World Cup in nearby Qatar, Dubai’s many bars drew commuting soccer fans.
However, a pint of beer easily can cost over $10 at a bar, with other drinks running even higher. It wasn’t immediately clear if this would cause a price drop at alcohol-serving establishments or if it only would affect those buying it from retailers.
Alcohol distributor Maritime and Mercantile International, which is part of the wider Emirates Group, made the announcement in a statement.
“Since we began our operations in Dubai over 100 years ago, the emirate’s approach has remained dynamic, sensitive and inclusive for all,” said Tyrone Reid of MMI. “These recently updated regulations are instrumental to continue ensuring the safe and responsible purchase and consumption of alcoholic beverages in Dubai and the UAE.”
MMI did not respond to a question over whether the decision was permanent. However, an ad put up by MMI urged customers to buy from its stores, saying “you no longer need to drive out to the other emirates.” Dubai residents long have driven into Umm al-Quwain and other emirates for bulk, tax-free alcohol purchases.
African & Eastern, the second alcohol retailer believed to be at least partially held by the state or affiliated firms, also announced the end of the municipality tax and license fees.
Under Dubai law, non-Muslims must be 21 or older to consume alcohol. Drinkers are supposed to carry plastic cards issued by the Dubai police that permit them to purchase, transport and consume beer, wine and liquor. Otherwise, they can face fines and arrest — even though the sheikhdom’s vast network of bars, nightclubs and lounges almost never ask to see the permit.
Still, relatively liberal Dubai is an outlier among others in the region. Sharjah, an emirate that borders Dubai to the north, outlaws alcohol, as do the nearby nations of Iran, Kuwait and Saudi Arabia.
Abu Dhabi, the capital of the oil-rich UAE, ended its alcohol license system in September 2020. The announcement Sunday also came as the UAE prepares to introduce a 9% corporate tax in June atop of other fees and charges it levies while avoiding personal income taxes.
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Follow Jon Gambrell on Twitter at www.twitter.com/jongambrellAP.
The thousands of pages of documents released by congressional Democrats paint a more detailed picture of former president Donald Trump’s finances over a six-year period, including his time in the Oval Office. Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, joins CBS News to break down what the documents tell us.
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The Democratic-controlled House Ways and Means Committee released six years of former President Donald Trump’s tax returns, ending Trump’s years-long legal battle to keep them secret. Meanwhile, the Jan. 6 committee has released another round of witness transcripts. Scott MacFarlane reports.
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Remember when Donald Trump won the 2016 presidential election (I know, I don’t like thinking about it either) and he claimed he would donate his entire presidential salary—a hefty sum of $400,000 a year—to charity? He sure loved talking about it. During his campaign in 2015, he tweeted that he wouldn’t keep “even one dollar” of his salary, claiming that he would “totally [give] up my salary if I become president.” In March 2019, he tweeted that “While the press doesn’t like writing about it, nor do I need them to, I donate my yearly Presidential salary of $400,000.00 to different agencies throughout the year.”
To his credit, Trump actually did make donations to various government agencies, like the National Parks Service. However, thanks to the release of his tax returns from 2015 to 2020, we now know more about his history of donations—and there’s a significant gap. According to CNN, Trump claimed no charitable donations at all on his 2020 tax return, making it extremely unlikely that he donated that year’s salary. Plus, many of the charitable donations he claimed in previous years are “unsubstantiated.”
Did the enormous loss he claimed on his 2020 taxes mean that he needed the $400,000 to scrape by? Did he just get bored and spiteful after losing the 2020 election? We don’t know for sure what happened to that money, but what his tax returns make clear is that, after promising to donate every last cent of his salary, he failed to keep that promise. Quelle suprise.
The tax returns have plenty of other revelations besides the salary donations—including business expenses that are miraculously identical, down to the last dollar, to the profits from those businesses—which makes his tax liability for said businesses zero dollars.
Trump’s tax returns have me thinking about the time he hosted the Clemson Tigers, the 2019 national college football champions, at the White House. Trump clearly didn’t want them there, and instead of springing for catering, he fed them mountains of fast food. The whole fiasco was trashy, racist, and disrespectful—made even more so by Trump’s inability to shut up about how he had paid for the burgers out of pocket.
One thing we know about Trump is that the more he blathers on about having paid for something, the less likely he is to have actually ponied up all the cash he said he would. The man is a chronic liar and a lifelong miser, and the sooner he’s out of the public eye, the better.
Donald Trump’s tax returns, long the subject of speculation as well as a three-year legal fight, are now in the public eye for anyone to review. After last week releasing a summary of the IRS’ efforts to audit the former president, along with some details of his income in recent years, the House Ways and Means Committee early Friday released redacted versions of six years’ worth of his returns.
Whether Americans learn much from the reams of information released today is another matter. As with many ultra-wealthy individuals, Trump’s finances are dauntingly complex — indeed, the IRS itself has previously remarked on the difficulty of examining every entity from which he has drawn income over the years.
Here are some of the areas tax professionals said they’re focusing on.
What do the returns actually show about his finances?
That could be hard to assess given Trump’s sprawling business empire. The former president is financially linked to more than 400 separate entities, including trusts, limited liability corporations and partnerships, according to House researchers.
Of these, however, just seven were examined in the Ways and Means Committee’s report earlier this month. Although the returns being disclosed Friday will likely name these entities and list an income or loss for each one, additional details will likely be limited, experts said.
“We’re not going to know what those [entities] are doing,” Bruce Dubinsky, a forensic accountant and founder of Dubinsky Consulting. “You’re just going see a line and an amount — could be income, could be a loss — for that year. We would then need those LLC or S corporation returns to see, OK, what’s going on?”
Such a large number of entities makes it more likely that some sources of Trump’s income, losses or wealth could be left out, offering a misleading picture of his tax status. The IRS has highlighted the complexity of performing a comprehensive examination of Trump’s income and tax liability.
“With over 400 flow-thru returns reported on the Form 1040, it is not possible to obtain the resources available to examine all potential issues,” states an IRS memo cited in the Ways and Means report.
Like all the tax pros interviewed for this story, Dubinsky noted he has no specific insight into Trump’s returns and made his assessment based strictly on his knowledge of the tax code and published excerpts of Trump’s finances.
But a preliminary review of Trump’s 2020 tax return released by the House panel on Friday shows the kind of ordinary income gains and losses that any major real estate developer might report, Dubinsky said. Those include large losses from over 100 business entities as well as credits for taxes he paid on his ventures around the world, including golf courses in Scotland and Ireland.
“He’s got a lot of different real estate entities,” Dubinsky told CBS News after reviewing the documents. “Some were generating millions of dollars of income. Some had depreciation, creating losses. He’s got quite a bit of interest income and dividend income. If you do a back-of-the-napkin calculation, I think in 2020 that’s probably equivalent to about $500 million of just net worth in liquid assets.”
By contrast, the releases show that in 2015 alone Trump paid $573,000 simply to have his individual 1040 form prepared, underlining the enormous tax-prep costs for such complex returns.
How much did money Trump make from being famous?
The report from the Joint Committee on Taxation said Trump paid no federal income tax in 2020, the final year of his presidency. The former president paid a net of only $750 in income taxes in 2017. He paid $1.1 million in net federal income taxes combined in 2018 and 2019.
Although Trump early in his career made money chiefly from his family’s real-estate empire, in time he capitalized on his celebrity to generate income, making hundreds of millions from the bestselling “Art of the Deal” and other books, as well as the NBC television hit “The Apprentice.”
“I’m going to look at the schedule Cs, I want to see if there is anything from publishing, book deals, that sort of stuff,” Dubinsky said. “Was he getting royalties on ‘The Apprentice?’ If so, there might be royalties that come in and are reported on the return.”
According to the New York Times, “The Apprentice” alone earned Trump $200 million between 2005 and 2018. If he kept earning royalties while in office, he wouldn’t be the first. Former President Barack Obama also benefited from publishing, although on a much smaller scale. While he was in office, Obama earned twice as much from book royalties as from his presidential salary, Forbes has calculated.
Dubinsky noted that “it’s hard to tell just looking at a tax return how successful somebody is — there might be three ventures that are very successful, there might be a venture that’s not so successful.”
He added, “But I think on par, when you look at everything in the tax return in total, I think it does paint a picture of a very complicated business venture system that Donald Trump was running.”
In a statement sent by the Trump campaign after the tax returns were disclosed, the former president said his returns show “how proudly successful I have been.”
“The Democrats should have never done it, the Supreme Court should have never approved it, and it’s going to lead to horrible things for so many people,” Trump said.
How charitable is Trump?
The charitable activities of the businessman-turned-president are sure to garner considerable interest, said E. Martin Davidoff, founder and managing partner of Davidoff Tax Law.
“I might look at his personal returns just out of curiosity — I’ve never seen the tax returns of a billionaire,” Davidoff said. “What does he deduct? How much is he giving to charity? That would be an interesting thing because that could be a very big deduction.”
Davidoff expects to see some limited information on the types of charitable contributions.
“You’ll know whether it’s cash or property because there are two separate forms for doing that and two separate line items for schedule E,” he said. “If he gave away appreciated stock, if he gave away real estate, that’ll be listed out — that’s required in the detail.”
In the final year of his presidency, Trump reported making no charitable donations, the tax returns show. That contrasted with the prior two years, when he reported making about $500,000 worth of donations. It’s unclear whether any of the figures include his pledge to donate his $400,000 presidential salary back to the U.S. government. He reported donating $1.1 million in 2016 and $1.8 million in 2017.
As for exactly where Trump directed his charitable contributions, that may not be clear, either, tax experts said. Although many people do list recipients of charity on their returns, it’s not required. Meanwhile, many ultra-rich individuals form a charitable trust or a private foundation to keep the details of their giving under wraps.
Another question likely to remain un-answered for now is whether Trump accurately claimed the value of all his donations, tax pros said. One issue the Ways and Means committee brought is up whether a type of deduction known as a conservation easement that Trump reported as being worth $21 million was truly worth that much.
“The IRS allows that deduction, but the IRS may be questioning the value of it. And we won’t know the outcome until the audits are done,” Dubinsky said.
How lucrative is it to be a real estate developer?
Previously published excerpts of Trump’s returns have focused on years in which he reported large financial losses. In the 1980s and 90s, the Times concluded, Trump “appears to have lost more money than nearly any other individual American taxpayer.”
Trump’s longtime accountant also recently testified at the Trump Organization’s recent criminal trial that the real estate developer reported losses on his tax returns every year for a decade, including nearly $700 million in 2009 and $200 million in 2010.
Many have questioned the fairness of a self-proclaimed billionaire being allowed to avoid income-tax liability, with one columnist calling it a “national disgrace.” But tax pros underline that this reflects questions about the tax code, which offers a range of ways for wealthy Americans, including real estate moguls, to legally shelter their income.
“The obvious question is, how does a guy pay such a small amount in tax when he’s so wealthy? By design, real estate shelters income,” Davidoff said.
“If I have real estate and there’s positive cash flow, the depreciation on that real estate shelters some of that income,” he added. “The obvious question people will have is, why is the amount he is paying so low? That’s the tax laws.”
For example, depreciation is an artificial calculation designed to account for the fact that assets like buildings lose value over time. Dubinsky illustrated it with an example of a developer who builds a project worth $50 million, and — as is common — puts up $1 million of his own money for the project, while borrowing the rest.
“When you have a professional tax preparer, as President Trump had, you can take advantage of those tax code sections and the loopholes, if you call them loopholes — they’re legal,” Dubinsky said. “And there’s evidence in his return he took a lot of appreciation deductions on his real estate ventures and continued to generate those deductions, and that offsets other income. And that’s totally legal to do.”
These tax breaks — deliberately designed to incentivize real estate projects — might seem alien to most people whose main source of income is their job.
“The average person doesn’t do that,” Dubinsky said. “They’re getting a W-2 for $85,000. And they’re like, ‘Well, I’m paying tax on $85,000. Why isn’t this guy that’s making billions, or supposedly worth billions, paying his fair share?’ I mean, I hate to come back to it. But unfortunately that’s the way the tax code was crafted.”
Democrats in Congress released thousands of pages of former President Donald Trump’s tax returns Friday, providing the most detailed picture to date of his finances over a six-year period, including his time in the White House, when he fought to keep the information private in a break with decades of precedent.
The documents include individual returns from Trump and his wife, Melania, along with Trump’s business entities from 2015-2020. They show how Trump used the tax code to lower his tax obligation and reveal details about foreign accounts, charitable contributions and the performance of some of his highest-profile business ventures, which had largely remained shielded from public scrutiny.
The disclosure marks the culmination of a yearslong legal fight that has played out everywhere from the presidential campaign to Congress and the Supreme Court as Trump persistently rejected efforts to share details about his financial history — counter to the practice of transparency followed by all his predecessors in the post-Watergate era. The records release comes just days before Republicans retake control of the House and weeks after Trump announced another campaign for the White House.
The records show how Trump limited his tax liability by offsetting his income against corporate losses as well as millions of dollars in business expenses, asset depreciation and other deductions.
While Trump paid $641,931 in federal income taxes in 2015, the year he began his campaign for president, he paid just $750 in 2016 and 2017, according to a report released last week by Congress’ nonpartisan Joint Committee on Taxation. He paid nearly $1 million in 2018, but only $133,445 in 2019 and nothing in 2020, the year he unsuccessfully sought reelection.
The records also detail Trump’s foreign holdings.
Trump, according to the filings, reported having bank accounts in China, Ireland and the United Kingdom in 2015 through 2017, even as he was commander in chief. Starting in 2018, however, he only reported an account in the U.K. The returns also show that Trump claimed foreign tax credits for taxes he paid on various business ventures around the world, including licensing arrangements for use of his name on development projects and his golf courses in Scotland and Ireland.
In several years, Trump appears to have paid more in foreign taxes than he did in net U.S. federal income taxes, with income reported in countries including Azerbaijan, China, India, Indonesia, Panama, the Philippines, St. Martin, Turkey and the United Arab Emirates.
The documents also show that Trump’s charitable donations often represented only a sliver of his income. In 2020, the year the coronavirus ravaged the economy, Trump reported no charitable donations at all. In 2019 and 2018 he reported writing checks for about $500,000 in donations. In earlier years the numbers were higher — $1.8 million in 2017 and $1.1 million in 2016.
It’s unclear whether the reported sums included Trump’s $400,000 annual presidential salary, which he had said, as a candidate, that he would forgo and which he claimed he donated to various federal departments.
Jeff Hoopes, an accounting professor at the University of North Carolina’s Kenan-Flagler Business School, described Trump’s returns as “large and complicated” with “hundreds of entities scattered all over the globe.”
He noted that many of those entities are slightly unprofitable, which he described as “pretty magical as far as the tax code.”
“It’s hard to know if someone’s really bad at business or really good at tax planning, because they both look like the same thing,” he said.
Daniel Shaviro, a taxation professor at New York University, cited the large financial losses from so many of Trump’s businesses, despite their often healthy sales, as something that should raise suspicions from auditors. “There’s fishy looking stuff here.”
Shaviro also cited examples of suspicious or sloppy math even in smaller businesses, such as an aviation firm dubbed “DT Endeavor I LLC,” which in 2020 reported both sales and expenses of $160,144. Such exact matches are unusual, Shaviro said. Yet the form also reported an $18,923 loss.
“The return doesn’t say, ‘Guess what? I’m committing fraud,’” Shaviro said, “but there are red flags.”
The release marks the latest setback for Trump, who has been mired in investigations, including federal and state inquiries into his efforts to overturn the 2020 election. The Department of Justice also has been investigating reams of classified documents found at his Mar-a-Lago club and possible efforts to obstruct the investigation.
In a statement Friday, Trump lashed out at Democrats and the Supreme Court for the release.
“It’s going to lead to horrible things for so many people,” he said. “The radical, left Democrats have weaponized everything, but remember, that is a dangerous two-way street!”
He said the returns demonstrated “how proudly successful I have been and how I have been able to use depreciation and various other tax deductions” to build his businesses.
The returns were released by the House Ways and Means Committee, which held a party-line vote last week to make the returns public after years of legal wrangling.
The returns detail how Trump used tax law to minimize his liability, including carrying forward massive losses from previous years. Trump said during his 2016 campaign that paying little or no income tax in some years “makes me smart.”
In 2020, more than 150 of Trump’s business entities listed negative qualified business income, which the IRS defines as “the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business.” In total for that tax year, combined with nearly $9 million in carryforward loss from previous years, Trump’s qualified losses amounted to more than $58 million.
Another of Trump’s money losers: the ice rink his company operated until last year in New York City’s Central Park. Trump reported a total of $2.6 million in losses from Wollman Rink over the six years made public. The rink, an early Trump Organization jewel run through a contract with New York City’s government, reported a loss of $1.3 million in 2015 despite taking in $9.3 million in revenue, according to the tax returns. The rink turned a $298,000 profit in 2016, but was back to melting cash in each of the next four years.
“Trump seems to be creating huge losses that are suspicious or questionable under current law,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, who said he had spent 20 years preparing taxes for corporations and wealthy individuals and “never saw anyone lose money as regularly and as large as Trump lost money year after year.”
“To me, Trump’s business operations were phenomenally unsuccessful and I struggle to figure out how much of it is attributable to Trump’s unluckiness as a businessman and how much of it is attributable to Trump’s inflation,” he said.
Aspects of Trump’s finances had been shrouded in mystery since his days as an up-and-coming Manhattan real estate developer in the 1980s.
Trump, known for building skyscrapers and hosting a reality TV show before winning the White House, did offer limited details about his holdings and income on mandatory disclosure forms and financial statements he provided to banks to secure loans and to financial magazines to justify his ranking on lists of billionaires.
Trump’s longtime accounting firm has since disavowed the statements, and New York’s attorney general has filed a lawsuit alleging Trump and his Trump Organization fraudulently inflated asset values on the statements. Trump and his company have denied wrongdoing.
In October 2018, The New York Times published a Pulitzer Prize-winning series based on leaked tax records that contradicted the image Trump had tried to sell of himself as a self-made businessman. It showed that Trump received a modern-day equivalent of at least $413 million from his father’s real estate holdings, with much of that money coming from what the Times called “tax dodges” in the 1990s.
A second series in 2020 showed that Trump paid no income taxes at all in 10 of the previous 15 years because he generally lost more money than he made.
The IRS only began to audit Trump’s 2016 tax filings on April 3, 2019 — more than two years into his presidency — when the Ways and Means chairman, Rep. Richard Neal, D-Mass., asked the agency for information related to the returns.
Every president and major-party candidate since Richard Nixon has voluntarily made at least summaries of their tax information available to the public.
___
Associated Press writers Gary Fields, Paul Wiseman and Farnoush Amiri in Washington, Meg Kinnard in Columbia, South Carolina, and Nicholas Riccardi in Denver contributed to this report.
Donald Trump’s tax returns — long the subject of speculation and a bitter legal fight — are set to be made public. After last week releasing a summary of the IRS’ efforts to audit the former president, along with some details of his income in recent years, the House Ways and Means Committee plans to release the documents on Friday.
Whether Americans will learn much from the returns is another question. Trump’s finances are known to be complex, with the IRS itself complaining about the difficulty of examining every entity from which he may have drawn income.
Here are the areas tax professionals said they plan to focus on once the returns are released.
What do the returns actually show about his finances?
That could be hard to assess given Trump’s sprawling business empire. The former president is financially linked to more than 400 separate entities, including trusts, limited liability corporations and partnerships, according to House researchers.
Of these, however, just seven were examined in the Ways and Means Committee’s report earlier this month. Although the returns being disclosed Friday will likely name these entities and list an income or loss for each one, additional details will likely be limited, experts said.
“On his return, there will be a white paper schedule in the back — it may be five or 10 pages long — it’s going to list all these entities,” said Bruce Dubinsky, a forensic accountant and founder of Dubinsky Consulting.
“We’re not going to know what those [entities] are doing. You’re just going see a line, and an amount — could be income, could be a loss — for that year. We would then need those LLC or S corporation returns to see, OK, what’s going on?”
Such a large number of entities makes it more likely that some sources of Trump’s income, losses or wealth could be left out, offering a misleading picture of his tax status. The IRS has highlighted the complexity of performing a comprehensive examination of Trump’s income and tax liability.
“With over 400 flow-thru returns reported on the Form 1040, it is not possible to obtain the resources available to examine all potential issues,” states an IRS memo cited in the Ways and Means report.
Like all the tax pros interviewed for this story, Dubinsky noted he has no specific knowledge of Trump’s returns and made his assessment based strictly on his knowledge of the tax code and published excerpts of Trump’s finances.
Although Trump early in his career made money chiefly from his family’s real-estate empire, in time he capitalized on his celebrity to generate income, making hundreds of millions from the bestselling “Art of the Deal” and other books, as well as the NBC television hit “The Apprentice.”
“I’m going to look at the schedule Cs, I want to see if there is anything from publishing, book deals, that sort of stuff,” Dubinsky said. “Was he getting royalties on ‘The Apprentice?’ If so, there might be royalties that come in and are reported on the return.”
According to the New York Times, “The Apprentice” alone earned Trump $200 million between 2005 and 2018. If he kept earning royalties while in office, he wouldn’t be the first. Former President Barack Obama also benefited from publishing, although on a much smaller scale. While he was in office, Obama earned twice as much from book royalties as from his presidential salary, Forbes has calculated.
How charitable is Trump?
The charitable activities of the businessman-turned-president are sure to garner considerable interest, said E. Martin Davidoff, founder and managing partner of Davidoff Tax Law.
“I might look at his personal returns just out of curiosity — I’ve never seen the tax returns of a billionaire,” Davidoff said. “What does he deduct? How much is he giving to charity? That would be an interesting thing because that could be a very big deduction.”
Davidoff expects to see some limited information on the types of charitable contributions.
“You’ll know whether it’s cash or property because there are two separate forms for doing that and two separate line items for schedule E,” he said. “If he gave away appreciated stock, if he gave away real estate, that’ll be listed out — that’s required in the detail.”
As for exactly where Trump directed his charitable contributions, that may not be clear, tax experts said. Although many people do list recipients of charity on their returns, it’s not required. Meanwhile, many ultra-rich individuals form a charitable trust or a private foundation to keep the details of their giving under wraps.
Another question likely to remain un-answered for now is whether Trump accurately claimed the value of all his donations, tax pros said. One issue the Ways and Means committee brought is up whether a type of deduction known as a conservation easement that Trump reported as being worth $21 million was truly worth that much.
“The IRS allows that deduction, but the IRS may be questioning the value of it. And we won’t know the outcome until the audits are done,” Dubinsky said.
How lucrative is it to be a real estate developer?
Previously published excerpts of Trump’s returns have focused on years in which he reported large financial losses. In the 1980s and 90s, the Times concluded, Trump “appears to have lost more money than nearly any other individual American taxpayer.”
Many have questioned the fairness of a self-proclaimed billionaire being allowed to avoid income-tax liability, with one columnist calling it a “national disgrace.” But tax pros underline that this reflects questions about the tax code, which offers a range of ways for wealthy Americans, including real estate moguls, to legally shelter their income.
“The obvious question is, how does a guy pay such a small amount in tax when he’s so wealthy? By design, real estate shelters income,” Davidoff said.
“If I have real estate and there’s positive cash flow, the depreciation on that real estate shelters some of that income,” he added. “The obvious question people will have is, why is the amount he is paying so low? That’s the tax laws.”
For example, depreciation is an artificial calculation designed to account for the fact that assets like buildings lose value over time. Dubinsky illustrated it with an example of a developer who builds a project worth $50 million, and — as is common — puts up $1 million of his own money for the project, while borrowing the rest.
“One-thirtieth of that building gets written off every year,” Dubinsky said. “If I have no income from that building in the first year and I’ve got operating expenses, I’ve now got a loss. [And] I’ve got all the interest I’m paying on it.”
These tax breaks — deliberately designed to incentivize real estate projects — might seem alien to most people whose main source of income is their job.
“The average person doesn’t do that,” Dubinsky said. “They’re getting a W-2 for $85,000. And they’re like, ‘Well, I’m paying tax on $85,000. Why isn’t this guy that’s making billions, or supposedly worth billions, paying his fair share?’ I mean, I hate to come back to it. But unfortunately that’s the way the tax code was crafted.”
When it comes to retirement, saving sooner is better than saving later. But if you’ve already maxed out your 401(k) or don’t have the option to use a 401(k), you’ll have to turn to an IRA or individual retirement account.
Traditional IRAs are just one of your options, however. You can instead put money into a Roth IRA. Financial advisors can help you navigate the ins and outs; however, knowing about Roth IRA withdrawal restrictions and annual contribution limits is essential before investing in this type of account.
This article will explain a Roth IRA, how it works and how you can start one at the earliest opportunity.
A Roth IRA is a type of individual retirement account. As a tax-advantaged individual retirement account, Roth IRAs allow you to contribute after-tax dollars. The best way to understand a Roth IRA is to compare it to a traditional IRA.
A traditional IRA is a tax-deferred account. You contribute money to a regular IRA pre-tax, so you don’t have to pay income taxes on any of those contributions (lowering your gross income).
You can deduct contributions from your IRA each tax year. However, when you withdraw money from your regular IRA, you must pay taxes on those withdrawals since they are no longer tax-deductible.
A Roth IRA is the opposite. You contribute money to the Roth IRA and are taxed on those contributions, just like the rest of your regular income.
However, since that money is taxable income, you don’t owe any taxes when you withdraw money from your Roth IRA. You walk away with more money in Roth IRA income than traditional IRAs.
You can still only take penalty-free withdrawals (or qualified distributions) after you are 59 1/2 years old, according to the SIPC. Still, Roth IRAs are excellent for securing tax-free income when you’re older, regardless of filing status. Roth IRAs are also FDIC-insured in most cases, usually up to $250,000.
Roth IRAs are primarily advantageous if you think you’ll be in a higher tax bracket when you withdraw your money (which is true for many Americans). For instance, if you don’t have much money in your 20s and 30s but earn much more in your 60s, you’ll have to pay more taxes on your withdrawals if you use a traditional IRA.
A Roth IRA allows you to circumvent this downside and have more retirement savings for your golden years. Thus, opening a Roth IRA at a trusted brokerage could be a great way to enjoy tax-free growth of your savings.
How does a Roth IRA work?
A Roth IRA works very similarly to a traditional IRA. You sign up for a Roth IRA account at a financing institution, like Fidelity or Vanguard, and regularly contribute to the account.
Depending on your preferences, you can select your investments individually or have a fund manager take care of them. You can find a Roth IRA from many different financial sources, including:
You have access to many different investment options through a Roth IRA, even if you do a Roth IRA conversion from another account.
Note that all standard Roth IRA contributions have to be made in cash. Therefore, you can’t contribute money to your Roth IRA in the form of property or securities; you have to report those contributions, so they’re taxed according to your tax rate.
Just like regular IRAs, Roth IRA investments grow tax-free. Notably, Roth IRAs are much less restrictive compared to other retirement accounts. You can maintain your Roth IRA indefinitely, and unlike traditional IRAs, there aren’t any required minimum distributions (RMDs).
The early withdrawal penalty for this type of IRA is the same as with a standard IRA, even if you have a brokerage account handle it.
It depends. If your Roth IRA is at a bank, it may be classified under a separate insurance category compared to regular deposit accounts. Because of this, insurance coverage for most IRA accounts isn’t as comprehensive or robust.
That said, the Federal Deposit Insurance Corp. (or FDIC) does provide insurance protection worth up to $250,000 for both traditional and Roth IRAs. Note that account balances are combined instead of protected individually, however.
Contribution rules for Roth IRAs
Roth IRAs, like other IRAs and retirement accounts like 401(k)s, have contribution limits. Roth IRA contribution limits prevent account holders from investing too much money into their accounts at once.
For instance, in 2023, the total yearly contribution you can make to a Roth IRA is $6500 if you are under 50. If you are 50 or older, you can contribute another $1500 to your account as a catch-up contribution.
Withdrawing from a Roth IRA
Just like a traditional IRA, Roth IRAs have specific rules around withdrawals. Specifically, you cannot withdraw any earnings from your Roth IRA without incurring fees unless you are 59 ½ or older.
Note that that’s not the same thing as contributions; you can withdraw contributions (such as the original amount of money you put into the account) at any point. This earnings withdrawal limit prevents people from using their Roth IRA as a traditional investment or stock trading account.
Since most people retire around 59 ½, the government charges a 10% penalty and other taxation fees if you withdraw any earnings or gain money from your Roth IRA early.
In addition, there’s a “five-year rule” to keep in mind. If you start your Roth IRA late in life, you can withdraw your earnings tax-free only if you withdraw that money five years after your first contribution to any Roth IRA under your name.
The five-year time clock begins with your first contribution to any Roth IRA, not just the one from which you want to withdraw funds.
Of course, there are some exceptions to these rules. You could avoid the 10% taxation and penalty rate if you use the earnings from your Roth IRA to buy a home for the first time. But in this case, you can only take out $10,000.
Furthermore, if you have a permanent disability or pass away, you or your beneficiary can take money out of your Roth IRA.
Bottom line: Try to plan that won’t be withdrawing money from your Roth IRA until you retire.
Cryptocurrencies, but remember that the IRS does not let you contribute cryptocurrency directly to your Roth IRA (unless you use a new type of Bitcoin IRA)
Many people open Roth IRAs in conjunction with a 401(k) or instead of traditional IRAs, as Roth accounts offer particular advantages. Some of these include:
No minimum distributions are required: You don’t have to contribute a certain amount each year when you have a Roth IRA.
No income tax for inherited Roth IRAs: Therefore, if you pass your Roth IRA to an error or beneficiary, they can also get tax-free withdrawals (provided that you meet the five-year rule).
Easier withdrawals: With a Roth IRA, you can withdraw any contribution money without taxes or penalties (though you may face penalties if you withdraw investment earnings before the age of 59 ½).
Flexible contribution schedules: You can decide how much you contribute to a Roth IRA and when.
Plenty of time to add contributions: You have until the tax deadline each year to contribute more money into your Roth IRA to reach the $6500 limit.
Extra savings for retirement: You can combine your Roth IRA contributions with a 401(k) retirement plan.
Tax-free distributions: After you’ve held your Roth IRA for five years and are 59 ½ years old, you can take any distributions, including investment earnings, from your Roth IRA without paying federal taxes.
Open at any age: Anyone can open a Roth IRA at any age, provided they have earned income.
How can you start a Roth IRA?
Knowing how to start one for yourself and your retirement future is essential, given the benefits and importance of a Roth IRA.
Check eligibility
Your first step is ensuring you are eligible to open a Roth IRA account. Note that you must have earned some income for the current tax year — this does not include any inheritance money you may have received from others.
Furthermore, income limits may prevent you from opening a Roth IRA. For instance, in the 2023 tax year, the income “phase-out” range (the income bracket allowed to make reduced contributions) is $138,000 and $153,000 as an individual or $218,000-$228,000 as a couple filing jointly.
Remember, too, that there are limits on how much you can invest into your Roth IRA each year.
Your next step is finding the right investment platform to open a Roth IRA. Practically every stock investment company offers Roth IRA accounts. If you already have a 401(k) or traditional IRA account, you can open a Roth IRA at the same organization, which may be easier than finding another organization.
Regardless, if you find a good platform or financial institution, ask questions like:
Whether there are fees to open or maintain your account (such as annual fees).
What kind of customer service the company provides.
What types of investments the company offers for your Roth IRA.
Whether it costs money to trade with your IRA, which could be important if you plan to buy and sell stocks or securities with your account.
Examples of institutions that offer Roth IRAs include Fidelity Investments, Vanguard and Charles Schwab.
Apply for a Roth IRA
Now it’s time to complete the necessary paperwork and apply for a Roth IRA. You can usually do this online or in person if there’s a local branch of your financial institution nearby.
In any case, you’ll need a few pieces of key information to complete the process:
Your Social Security number or SSN.
Your driver’s license or some other type of photo ID.
The bank routing number and checking or savings account number that you want to use to contribute money to your account.
The name and address of your employer.
The name, address and Social Security number for your plan beneficiary; this is the person who can receive money in your Roth IRA if you die.
Choose your investments
After opening your Roth IRA, you get to pick your investments. Most financial institutions have advisors to help you choose suitable investments for your portfolio based on your goals.
For instance, if you want to grow your Roth IRA slowly but surely, your investment advisor may recommend that you choose safe investments.
If, on the other hand, you are young and looking to save aggressively, they may recommend more aggressive, risky investments since you have time to make up for any lost income.
Because many people live longer than before, it may be wise to keep many stocks in your portfolio as you age. Since you live longer, it could be wise to continue holding assets in your Roth IRA even after you retire so you can continue making money to pull from.
Now, you have to make regular contributions to your Roth IRA. Remember, there are no limits on when you can make contributions; you just have to contribute up to the limit to maximize your portfolio’s growth.
As you can see, there’s a lot to like about Roth IRAs, and getting one started is just as easy as starting a traditional IRA. Consider your options carefully before contributing to any retirement account, as the penalty for withdrawing ahead of retirement can make switching your plans more costly than you think.
Income tax can take a big bite out of your wallet and your business’s bottom line. But not every state in the union charges income tax. Some states, like Texas, have become well-known as business havens for budget-minded entrepreneurs partly because they don’t charge income tax.
This article will look at nine states with no income tax and explore everything taxpayers need to know about these tax-reduced territories.
What is income tax?
Income tax is a crucial source of revenue for state and federal governments worldwide. There are several types of income tax that you might have to pay depending on where you live.
An individual income tax is levied on individuals’ wages, salaries or other income. States usually impose these.
Corporate income taxes are levied against businesses and their income from business operations.
Meanwhile, state and local income taxes are other forms of income tax that states have more power over. These are distinct from federal income taxes and subject to each state’s specific tax code. Some states, such as California, impose significant income taxes, while others levy no additional income tax.
Income tax is a very reliable source of income. People have to earn money to spend money, which means that levying an income tax provides local and federal governments with enough funding to build schools, maintain roads, pay law enforcement officers and fund all other types of government operations.
Which U.S. states don’t have to pay taxes on income?
Only some states charge income tax to their citizens.
Nine states either don’t have an income tax or are set to phase out income tax shortly. These states are:
Alaska
Florida
Nevada
New Hampshire — technically, New Hampshire makes tax investment and interest income, but those taxes will be gone in 2023.
South Dakota
Tennessee
Texas
Washington State — note that Washington does charge income tax for investment income and capital gains taxes, but only for those who earn a certain amount of money.
Wyoming
If you live in any of these states, you’ll take home more of your money from most sources of income, like your salaries and tips.
Does that mean you should immediately pack your bags and try to move to one of the above states? Not necessarily. Keep reading to review each state with no income tax and compare them based on their total tax burden and other factors.
Alaska
Alaska is both a cheap and expensive place to live. For instance, it has no state income tax or sales tax. The total tax burden for Alaska is 5.10% — the lowest of all 50 states. On top of that, all Alaskan residents get an annual payment from the Alaska Permanent Fund Corp.
Still, the cost of living in Alaska is higher than average because of its distance from manufacturing centers and the relative remoteness of its cities. So you can expect to pay more for things like groceries and gas.
Florida
Florida is a popular snowbird state thanks to its population of retirees and its warm temperatures. While the excise and sales taxes in Florida are higher than the national average, the total tax burden on Florida residents is 6.97%.
It does have higher-than-average housing costs, but on the plus side, Florida is a relatively cheap state to live in if you want to go to school.
Nevada’s total tax burden is 8.23%. Citizens don’t have to worry about income tax because there are high sales taxes on alcohol, gambling, purchasing groceries, buying clothes, casinos and hotels.
New Hampshire
Then there is New Hampshire. As mentioned above, New Hampshire doesn’t charge general income tax, but it does charge income taxes on certain things. The total tax burden for New Hampshire residents hovers at around 6.84%, which is relatively low compared to other states.
New Hampshire is a relatively small state, and the cost of living can vary depending on where you live.
South Dakota
South Dakota has a total tax burden of 7.37% for its filers. Even though it doesn’t charge income tax, it does charge heavy taxes on things like cigarettes and alcohol.
It also charges very high sales taxes and has higher than average property tax rates, making it costly to live here if you don’t have a good source of income.
Tennessee
Tennessee’s total tax burden on its residents is 5.74%. Due to legislation passed in 2016, Tennessee lowered taxes for unearned income for its citizens. But this only resulted in a higher sales tax rate and the overall highest beer tax rate for any state in the union, measuring in at $1.29 per gallon.
Texas
Texas has a total tax burden of 8.19%. Most of its taxes come from excise taxes and sales taxes because the residents hate the idea of income taxes. Note that sales taxes can be up to 8.25%in certain jurisdictions.
Furthermore, property taxes in Texas are higher here than in most other states. Even with all that, there’s no denying that Texas has a relatively low tax burden compared to other conditions.
Combine that with higher-than-average living costs and high housing costs, and it’s clear that Washington is not among the most affordable states, even if it doesn’t charge income tax (for most).
Wyoming
Lastly, Wyoming is a very unpopulated state. It charges a total tax burden of 6.14% on its citizens, which includes excise, sales, (some) income and property taxes.
While Wyoming might be cheap, keep in mind that it’s only suitable for those who are fans of the frontier lifestyle. This empty state has little going on in terms of metropolitan areas or tourist attractions besides national parks.
Should you move to a state with no income tax?
Moving to a state with no income tax is an attractive prospect. No one likes getting a check from their work only to see what the government takes to pay for necessary services.
While you might rationally understand the purpose of income taxes, you might instinctively feel despondent to see your hard-earned money taken away right as you get it.
But while it can be tempting to move to a state with no income tax, you should consider the total tax burden each state levies on its residents before proceeding. You should also consider what each state has to offer.
For example, many people move to California, which is widely understood to be one of the most expensive states to live in. Why? It’s a beautiful state, with lots to do and job opportunities, particularly in the entertainment and tech industries.
Similar states, like New York, Hawaii or Minnesota, might have high federal income tax rates for all taxable income and additional taxes to boot but counteract that with low local sales tax rates.
In contrast, Wyoming might place a low tax burden on its residents. But you must have a job in farming, ranching or mining. There isn’t much to see and do in Wyoming if you aren’t a fan of the great outdoors.
Then you have to keep business taxes in mind. Self-employed individuals might find some states better than others regarding the final tax bill or their state sales tax brackets.
Factors like healthcare, pensions and dividend income can make states like Alabama, New Jersey, Illinois and others throughout the United States attractive places to live and work.
Therefore, don’t immediately pick one of these states and move just because it doesn’t have personal income tax on your earned income. Income taxes are valuable and vital for the government, and in many cases, they can help to fund some of the most enjoyable and profitable parts of state economies.
What’s the bottom line on states with no income tax?
There are plenty of states you can move to throughout the US without an income tax. These might be ideal states to move to in the future or states in which to start a business.
But remember that these no-income tax states have advantages and disadvantages; consider the total tax burden imposed on you and future businesses in each state before setting out for “greener” pastures.
Opinions expressed by Entrepreneur contributors are their own.
While there are other benefits, one of the most important reasons you’re in business is to make money. And it stands to reason that if you’re in business, you’d like to keep as much of what you generate as possible. That could be why so many people hate paying taxes.
But if you’re doing your bookkeeping correctly, you’ll find there are ways to keep some of the value your business generates. All you want to do is pay your fair share. And keep what’s left to run a successful small business or grow that business into something even bigger.
Above all, remember that you pay taxes on your profit, and your profit is your income minus your ordinary expenses; you report this to the IRS every year on Schedule C. So when you sit down to do your taxes or hand your information over to your tax accountant, you should be sure you’ve tracked every single business expense.
What deductions are obvious? Anything you buy that directly affects your business and is used for your business. If you’re in construction, it’s the cost of your equipment and raw materials. If you’re a web designer, it’s the software you use. Look at Schedule C and you’ll see the obvious ones: advertising, office expenses, licenses, utilities and more.
You need to be careful defining some expenses, especially if you’re running your business out of your home. Yes, you can deduct the part of your home that you use exclusively and regularly for business. But if you work weekdays at your home office and watch football from it on Sunday, it’s not exclusive to your business. If you only do your month-end bookkeeping in it — even if that’s all you do in it — once-a-month office use is not considered regular use.
But when you’re assembling your receipts or downloading expense data from your small business financial management system to provide to your tax accountant, there are certainly some expenses that you might not have thought to include. There may be other expenses you claim that are not eligible deductions. If filed in error, these mistakes could cost you fines — or worse — if you’ve deducted more than you should have or are permitted to.
While Schedule C enumerates 21 types of expenses, you still might miss some perfectly legal deductions. For instance:
Repairs or alterations to your home office: If you’re there all the time, then expenses like painting, re-flooring and brighter light fixtures would be deductible. Having a cleaning service for your office would be as well. The desk and file cabinets you use would also be deductible — as would the repair to the wall after your desk chair banged it up.
Education: Any education or training related to what you do to earn money is deductible. Many professionals require professional development courses to keep their licenses current. Others take classes to learn how to improve their business. If it’s relevant, it’s deductible.
Local travel: When you visit a client and pay to park in the lot across the street, that parking fee is deductible. If you take a toll bridge to cross the river to visit your client’s office, that bridge toll is deductible. And so is your mileage, assuming your client doesn’t reimburse you for those costs.
Your website: A website is a must-have to find and connect with new and existing customers. All related costs can be deductible — paying the person who creates it for you, paying for the website to be hosted, paying for its security, paying for the pictures and copy you post to it, etc. It’s all part of advertising, which is more than paying to run a small ad on your local radio or television station.
Startup costs: If this is your first year, the legal and professional fees you pay to complete and file your paperwork are deductible. Fees above the $5,000 first-year limit can be amortized over the succeeding 15 years.
Research and development: If you’re creating a new product, the expenses relevant to bringing that product to market are deductible.
Interest on debts: A loan you take for business purposes is tax-deductible as long as it’s an arms-length transaction. Keep track of the interest costs so you can deduct them at tax time. Your business credit card interest is also deductible.
Industry publication subscriptions: Every trade has a publication that keeps its practitioners current, from Advertising Age to Chain Store Age to Industry Week. Online subscriptions are also deductible.
Retirement savings for self-employed business owners: These include self-employed simplified employee pension (SEP) plans, solo 401(k) plans and Keogh or HR-10 plans.
Business gifts: There’s a limit of $25 per person per year for gifts to clients. But, 100 percent of the cost of employee meals at events such as holiday parties and company picnics is deductible.
Perks for your employees: Coffee in the office? That candy bowl at the front desk? 100 percent deductible. Lunch brought into the office can be fully deductible, while taking the team out for lunch is only 50 percent deductible.
Club or organization membership fees: The organization must be business- or community-related, such as a chamber of commerce, trade association or a professional organization.
Lawn mowing: If you receive clients at your home office, keeping the entrance to your house clean and presentable may be deductible.
Childcare for solo professionals: If you’re a parent and have a home office but you need to meet a client outside the home, childcare is deductible. If you’re leaving the house to go shopping, it’s not.
Just remember, you can’t deduct what you aren’t tracking. Prior to the 1980s, you didn’t have many options — record-keeping systems included paper, pencils and file cabinets. The late 20th century made spreadsheets an option, which required ensuring formulas were put into the correct cells as well as remembering where the related backup documentation was saved.
The modern era has given way to even better ways of tracking information, and distilling years of accounting and bookkeeping know-how into an easy-to-use software platform. Now you can stay on top of all of the purchase orders, invoices and receipts you’ll need as a backup to your accounting records. And, have them all safe in a cloud-based system. Files, images, emails and scanned paper documents can be captured from a mobile device or a computer and stored safely online. You can categorize all transactions easily by account category and relevant tax schedule for subsequent reporting and filing.
These systems can be accessed from anywhere your business takes you, from home office to factory floor to out-of-state business pitch. You can pull them up when needed (such as for a loan application, a meeting with your accountant or deciding on financing a business improvement).
Consider financial document management solutions that can also automatically extract data from these documents. Instead of keying these numbers into a spreadsheet or paying your tax accountant to do this manual work, systems like Neat automatically feed financial data to accounting and tax software. These systems can make it easier to account for all of your business expenses — the obvious ones and those that can be often overlooked.
Whether it’s the year-end check that makes holiday shopping a little less stressful or feeling more valued at the receipt of a reward for your great performance, a bonus is always a welcome windfall.
Of course, your bonus counts as income. When you earn money, you almost always have to save some of it for Uncle Sam. So how are bonuses taxed, exactly?
How Bonuses Are Taxed
Here’s what the IRS says about how it determines classifications of bonuses and how taxes play a part.
First, What Qualifies as a Bonus?
According to the IRS, bonuses are considered “supplemental income,” a category that also covers other types of income such as commissions, overtime pay, prizes, retroactive pay increases.
Paying taxes on supplemental income can be more complex compared to how your regular wages are taxed, depending on how much of a bonus you earn and the way in which your employer pays it.
How Normal Bonuses Are Taxed
In most cases, a bonus is paid and identified separately from your regular wage by your employer. In that case, your employer can use a couple of different methods to calculate the tax withholding.
These options include:
Percentage method: This method is fairly simply and is where a flat percentage% of your bonus is withheld: You’ll be taxed at 22% if the bonus is under $1 million. It may also help if you earn enough money to put you in a higher income bracket overall, though it depends on what tax bracket you’re in.
Aggregate method: Your bonus is added into a regular paycheck and can be more complicated tax-wise. Basically, the withholding for the total check amount is calculated as it normally would be per your income bracket and W-4 information, and then your employer subtracts the amount that would be withheld on a regular paycheck.
For instance, if the bonus was added to your paycheck — you get a check for $4,000 which is a $3,000 bonus on top of your normal $1,000 wages — your employer would calculate the amount you’d be taxed for $4,000 in regular wages. Say that amount was $300, and you normally see $50 of your $1,000 check withheld. In this case, your employer would subtract the $50 from the $300 to get a total withholding of $250.
How Bonuses Over $1 Million Are Taxed
According to the IRS, if you earn more than $1 million in supplemental wages, the first $1 million will be taxed at the regular 22%, and then the remainder will be taxed in your regular income bracket, at 37%. Your employer can’t use the aggregate method.
How Non-Cash Extras and Perks Are Taxed
You might be thinking you’re off the hook if you didn’t receive a cash bonus this year. However, other perks you’ve gotten might be taxable.
These non-cash perks are called fringe benefits and include anything that adds value above your normal rate of pay, including health club memberships, vacations, tuition reimbursement and travel compensation.
These taxable fringe benefits are taxed at their fair market value. For example, if you’re given a vacation package that has a $2,500 value, you’ll be taxed as if you had received a $2,500 bonus.
Tuition reimbursement, however, is a special case. Tuition reimbursement is tax-free up to $5,250. If your employer pays more, the first $5,250 is still tax free, but anything above that amount will be taxed.
Your employer should be keeping track and submitting these extra perks as taxable income, but it’s a good idea to have your own records as you’re ultimately the one responsible when it comes to submitting an accurate tax return.
Why You Could Get Some of That Money Back
Remember, if your employer doesn’t specify that the extra cash is a bonus and lumps it all in with your regular pay, it’ll be taxed at the same rate your regular paycheck would be.
And although the bonus is subject to specific tax rules when it’s paid, it’ll be treated just like any other kind of income. That means you could earn some of your bonus back in the form of a refund. That is, if your tax return shows too much was withheld for your total taxable income level, after accounting for deductions and credits.
No matter how it’s taxed, a bonus is basically free money you may not have expected. You don’t have to worry about your bonus catapulting you into a higher tax bracket, either — even if it does, only the money above that bracket threshold will be taxed at the higher rate.
Jamie Cattanach and Whitney Hansen are veteran personal finance writers and The Penny Hoarder contributors. Sarah Li-Cain contributed to this post.
There are benefits to giving stock as a gift, and this is a particularly good year to place investments under the Christmas tree.
Last year, 65% of Americans said they wanted investments as holiday gifts, according to a survey conducted by MagnifyMoney. Stock recipients could receive even more shares for the same cash amount this year, given that the markets are down. If they hang on to the gift of stock, they could see the overall value of their present rise with the market over time.
“When there is a low or depressed market, giving stock can be advantageous because you are able to transfer a given stock at a price that is lower than it has historically been,” said Emily Irwin, a wealth management executive at Wells Fargo. “This can be advantageous if funding a trust for someone where that stock is going to be held for a longer time period.”
In other words, now you are able to gift more shares of a particular stock for the same price as fewer shares would cost in a more elevated market.
Americans can give gifts of up to $16,000 tax-free under an annual federal gift-tax exclusion.
“You’re able to give more under the annual exclusion than you would otherwise be able to during any other year. That could be an advantage during the market volatility that we’re seeing in making a gift of stock,” Irwin said.
Capital gains transfer
Givers of stock transfer capital gains — the increase in the asset’s value — to the recipient of the stock. So they avoid capital gains taxes, but the recipient will see value shaved off the gift when they sell the stock.
“If you gift stock, it has carryover basis. If I gift it to my child and they decide to sell it, he or she would pay capital gains tax. That’s the negative for the recipient from a financial perspective,” Irwin said. “And it’s negative for the giver if the intention is, ‘I want to give $100 in stock,’ because really, there will be a 20% haircut taken off of it.”
Gifts to charity
When giving stocks to charities, there are advantages to both the donor and recipient. Neither party is responsible for paying capital gains taxes.
“If someone is giving it to a charity, that is a slam dunk in almost all circumstances because the charity, even if there is a built-in gain, does not pay any taxes when it sells stock,” Irwin said. “And the donor, the person giving it, will often get a tax deduction for it.”
Using an app
Certainly, giving stock to young children is a great way to introduce them to investment concepts at a young age, experts say.
“It is a helpful way to start that conversation with your kid and to give them an idea of what stock ownership is all about,” said Matt Schultz, personal finance expert at LendingTree.
Schultz likes to transfer stock using an app, like Stockpile, that helps parents invest on behalf of their kids.
You can also open a brokerage account in which to invest stocks.
“Some people like the physical presence of a stock certificate, but I do tell folks it’s better to get something like a Schwab account with a stock in it,” said Katie Brewer, a Dallas, Texas-based certified financial planner. “After you get the stock certificate, 20 years later when they go to sell it, they’ll have no earthly idea what it was bought for and won’t know how to report it on taxes.”
When Congress’ Joint Committee on Taxation investigated the IRS audits of Donald Trump’s taxes, an agent’s note on Trump’s 2017 filings stood out.
The IRS agent wrote that Trump “hires a professional accounting firm and Counsel to prepare and file tax return,” and they “ensure” that Trump “properly reports all income and deduction items.”
Joint Committee staff were befuddled by the note, according to a report on the IRS’ mandatory audit of the former president’s taxes, published Tuesday by the House Ways and Means Committee.
“The staff failed to understand why the IRS believed that use of counsel and an accounting firm ensures accuracy,” the Ways and Means Committee wrote in its report.
The accounting firm, Mazars USA, is one of the country’s largest, and it worked for Trump for decades until February of this year, when it cut ties with the former president and his company. In the months since, Trump and attorneys for his company have harshly criticized the firm’s work.
It’s a common practice for IRS agents to give some deference to large accounting firms, according to forensic accountant Bruce Dubinsky.
“If I’m a revenue agent and I see that he’s got Mazars or (another firm) I’m going to go, ‘Okay, look, the returns are all computerized, they’re done properly. I’ve got some level of faith that somebody in their quality control process—because all these firms have a quality control review process—has laid eyes on several layers on this, and I’m not gonna look at every number,’” said Dubinsky.
But Mazars’ work was recently criticized by lawyers for two Trump Organization companies that were found guilty on Dec. 6 of 17 New York State criminal counts related to tax fraud. During the trial, a Trump Organization attorney claimed during closing arguments that a Mazars accountant “failed in his job” to spot wrongdoing from company executives.
That accountant, Donald Bender, described Trump’s annual tax returns as a stack of paper “multiple feet” tall, gesturing with his hands high over the witness stand. Bender testified that he worked on Trump’s and the company’s taxes for nearly four decades, but that relationship came to a screeching halt in February.
Mazars wrote in a letter to the Trump Organization’s general counsel that a decade’s worth of the reports “should no longer be relied upon.” In the letter, a Mazars attorney wrote that the company “performed its work in accordance with professional standards” and compiled the statements based on information provided by the Trump Organization.
In the letter, a Mazars executive cited revelations from a New York attorney general’s civil investigation as among the reasons the accounting firm could no longer stand by its Trump financial statements. In September, the New York attorney general sued Trump and his company, alleging a massive yearslong fraud tied to the valuations of Trump Organization properties.
A spokesperson for the Trump Organization said in a February email that, “While we are disappointed that Mazars has chosen to part ways, their February 9, 2022 letter confirms that after conducting a subsequent review of all prior statements of financial condition, Mazars’ work was performed in accordance with all applicable accounting standards and principles and that such statements of financial condition do not contain any material discrepancies.”
But Trump and his team have since soured on Mazars, frequently criticizing the company.
Trump on Nov. 18 summarized his defense team’s stance on Mazars, in a post on his social media platform Truth Social.
“The highly paid accounting firm should have routinely picked these things up – we relied on them. VERY UNFAIR!” Trump wrote.
During her closing argument on Dec. 1, Trump Organization attorney Susan Necheles said Mazars “was either totally negligent or he turned a blind eye.”
Mazars and Bender did not reply to requests for comment, but during the Trump Organization’s trial, prosecutors showed an agreement between the company and Mazars in which the accounting firm stipulated that its work “does not include any procedures designed to detect errors, irregularities, illegal acts, including fraud or defalcations, should any exist.”
Graham Kates is an investigative reporter covering criminal justice, privacy issues and information security for CBS News Digital. Contact Graham at KatesG@cbsnews.com or grahamkates@protonmail.com
