It was a rough Thanksgiving at Mar-a-Lago this year, and Christmas is not looking much better—unless Donald Trump accusing Santa of being a “mole for radical left Democrats” and throwing a plate of cookies and milk against the wall is considered standard holiday cheer in Palm Beach.
On Tuesday, one day after the January 6 committee recommended the Department of Justice charge the ex-president with four major crimes, Punchbowl News reported that the House panel “has begun extensively cooperating with the Justice Department’s special counsel charged with overseeing investigations into former president Donald Trump.” That special counsel, Jack Smith, reportedly sent the committee a letter on December 5, “requesting all of the panel’s materials from the 18-month probe,” and beginning last week, the panel started “sending Smith’s team documents and transcripts,” with plans to share more documents and transcripts in the coming days, according to Punchbowl News’ source.
The reported cooperation marks a new front in the DOJ’s criminal investigation of Trump’s attempt to overturn the 2020 election results, and the insurrection that followed; previously, the January 6 committee had chosen not to share its findings with the department. Now, the committee’s year-plus of legwork, including interviews with more than 1,000 witnesses, could prove extremely valuable to Smith’s investigation. Earlier this month, CNN reported that, while some in Trump’s inner circle viewed Smith’s appointment by Attorney General Merrick Garland as a positive development for the ex-president’s freedom, others were worried he was brought in as a “hit man” and is likely to indict the guy.
In other less-than-positive developments for the 2024 presidential candidate, the House Ways and Means Committee met on Tuesday behind closed doors to decide whether or not to publicly release six years of Trump’s tax returns, which it obtained earlier this month to the former guy’s extreme chagrin. Trump, of course, has spent years going to extreme lengths to keep his tax documents under lock and key: He invented a rule that he couldn’t release them because they were under audit; he begged the Supreme Court to save him; and he installed a Treasury secretary who effectivelytook a vow to hide every copy of the returns in his anal cavity—before the Treasury ultimately letCongress get its hands on them.
While we don’t yet know how the committee members will vote, Republicans have insisted that releasing the returns could lead to horrible, horrible acts of transparency.
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As for what is actually in the documents, The New York Times previously noted that it’s “not clear whether the tax returns will contain major new revelations,” since we’ve already learned a tremendous amount about Trump’s finances over the last several years. In 2019, for instance, Michael Cohen, the then president’s former attorney, told Congress that Trump regularly inflated and deflated the value of his assets when it benefited him. And earlier this year, the New York attorney general’s office sued Trump and his three eldest children on accusations of lying to lenders, insurers, and tax authorities about said assets. (At the time the suit was filed, an attorney for Trump insisted that “absolutely no wrongdoing has taken place.”)
Meanwhile, earlier this month, Trump’s family business was found guilty of multiple counts of tax fraud (among other things). And then, of course, there’s the 2018 story from the Times—which won a Pulitzer—revealing that Trump amassed much of his fortune through “dubious tax schemes,” some of which included “instances of outright fraud.” (At the time of publication, a lawyer for Trump insisted that “TheNew York Times’ allegations of fraud and tax evasion are 100% false and highly defamatory. There was no fraud or tax evasion by anyone.” He added that if there was fraud or tax evasion, Trump had nothing to do with it, saying: “President Trump had virtually no involvement whatsoever with these matters.”) Two years later, the same news organization revealed that Trump had paid $750 in federal income taxes in 2016, another $750 in 2017, and bupkis in 10 of the previous 15 years.
Washington — The Democratic-controlled House Ways and Means Committee is expected to vote Tuesday on whether to publicly release years of former President Donald Trump’s tax returns, which he has long tried to shield.
Committee Chairman Richard Neal, a Democrat from Massachusetts, has kept a close hold on the panel’s actions, including whether the panel will meet in a public or private session. Minutes after the committee convened, it voted to go into a closed-door session to consider its next steps regarding the returns. The panel is expected to reopen the session for a final vote on next steps, and lawmakers agreed to release the transcript from its private session if any taxpayer information is released.
If lawmakers move forward with plans to release the returns, it’s unclear how quickly that would happen. But after a yearslong battle that ultimately resulted in the Supreme Court clearing the way last month for the Treasury Department to send the returns to Congress, Democrats are under pressure to act aggressively.
The committee received six years of tax returns for Trump and some of his businesses. And with just two weeks left until Republicans formally take control of the House, Tuesday’s meeting could be the last opportunity for Democrats to disclose whatever information they have gleaned.
Before committee members convened to discuss the release of Trump’s tax information, Rep. Kevin Brady, the panel’s top Republican, said the consequences of making the returns public would extend beyond the former president.
“Our concern is not whether the president should have made his tax returns public as is traditional, nor about the accuracy of his tax returns. That is for the IRS and the taxpayer for determine,” he said in a press conference. “Our concern is that if taken, this committee action will set a terrible precedent that unleashes a dangerous new political weapon that reaches far beyond the former president and overturns decades of privacy protections for average Americans.”
Reps. Richard Neal and Kevin Brady arrive for a House Ways and Means Committee hearing to discuss tax returns from former President Donald Trump and whether to make them public on Dec. 20, 2022.
MANDEL NGAN/AFP via Getty Images
Brady, of Texas, said that in the future, the heads of the Ways and Means and Senate Finance Committee, which under federal law can request certain individuals’ tax returns, “will have nearly unlimited power to target and make public the tax returns of private citizens.”
Trump has long had a complicated relationship with his personal income taxes.
As a presidential candidate in 2016, he broke decades of precedent by refusing to release his tax forms to the public. He bragged during a presidential debate that year that he was “smart” because he paid no federal taxes and later claimed he wouldn’t personally benefit from the 2017 tax cuts he signed into law that favored people with extreme wealth, asking Americans to simply take him at his word.
Tax records would have been a useful metric for judging his success in business. The image of a savvy businessman was key to a political brand honed during his years as a tabloid magnet and star of “The Apprentice” television show. They also could reveal any financial obligations — including foreign debts — that could influence how he governed.
But Americans were largely in the dark about Trump’s relationship with the IRS until October 2018 and September 2020, when The New York Times published two separate series based on leaked tax records.
The Pulitzer Prize-winning 2018 articles showed how Trump received a modern 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. Trump sued the Times and his niece, Mary Trump, in 2021 for providing the records to the newspaper. In November, Mary Trump asked an appeals court to overturn a judge’s decision to reject her claims that her uncle and two of his siblings defrauded her of millions of dollars in a 2001 family settlement.
The 2020 articles showed that Trump paid just $750 in federal income taxes in 2017 and 2018. Trump paid no income taxes at all in 10 of the past 15 years because he generally lost more money than he made.
The articles exposed deep inequities in the U.S. tax code as Trump, a reputed multi-billionaire, paid little in federal income taxes. IRS figures indicate that the average tax filer paid roughly $12,200 in 2017, about 16 times more than the former president paid.
Details about Trump’s income from foreign operations and debt levels were also contained in the tax filings, which the former president derided as “fake news.”
At the time of the 2020 articles, Neal said he saw an ethical problem in Trump overseeing a federal agency that he has also battled with legal filings.
“Now, Donald Trump is the boss of the agency he considers an adversary,” Neal said in 2020. “It is essential that the IRS’s presidential audit program remain free of interference.”
The Manhattan district attorney’s office also obtained copies of Trump’s tax records in February 2021 after after a protracted legal fight that included two trips to the Supreme Court.
The office, then led by District Attorney Cyrus Vance Jr., had subpoenaed Trump’s accounting firm in 2019, seeking access to eight years of Trump’s tax returns and related documents.
The DA’s office issued the subpoena after Trump’s former personal lawyer Michael Cohen told Congress that Trump had misled tax officials, insurers and business associates about the value of his assets. Those allegations are the subject of a fraud lawsuit that New York Attorney General Letitia James filed against Trump and his company in September.
Trump’s longtime accountant, Donald Bender, testified at the Trump Organization’s recent criminal trial that Trump reported losses on his tax returns every year for a decade, including nearly $700 million in 2009 and $200 million in 2010.
Bender, a partner at Mazars USA LLP who spent years preparing Trump’s personal tax returns, said Trump’s reported losses from 2009 to 2018 included net operating losses from some of the many businesses he owns through his Trump Organization.
The Trump Organization was convicted earlier this month on tax fraud charges for helping some executives dodge taxes on company-paid perks such as apartments and luxury cars.
The current Manhattan district attorney, Alvin Bragg, told CBS News in an interview last week that his office’s investigation into Trump and his businesses continues.
“We’re going to do our talking in the courtroom,” Bragg said. “We’re working everyday.”
Trump, who refused to release his returns during his 2016 presidential campaign and his four years in the White House while claiming that he was under IRS audit, has argued there is little to be gleaned from the tax returns even as he has fought to keep them private.
“You can’t learn much from tax returns, but it is illegal to release them if they are not yours!” he complained on his social media network last weekend.
Yet after two years as president, it’s Joe Biden who is acting on those promises. He jokes that he’s created an “infrastructure decade” after Trump merely managed a near parody of “infrastructure weeks.” His legislative victories are not winning him votes from Trump loyalists or boosting his overall approval ratings. But they reflect a major pivot in how the government interacts with the economy at a time when many Americans fear a recession and broader national decline.
Gone are blanket tax cuts. No more unfettered faith in free trade with non-democracies. The Biden White House has committed more than $1.7 trillion to the belief that a mix of government aid, focused policies and bureaucratic expertise can deliver long-term growth that lifts up the middle class. This reverses the past administration’s view that cutting regulations and taxes boosted investments by businesses that flowed downward to workers.
With new laws in place, Biden is taking the gamble that the federal bureaucracy can successfully implement and deliver on his promises, including after he leaves office.
That is a tricky spot, as Trump himself learned that global crises such as a pandemic can quickly ruin the foundations of an economic agenda, causing businesses and voters to shift priorities. There are few guarantees that the economy behaves over 10 years as government forecasts expect, while Biden’s policies will likely be challenged by the new Republican majority in the House.
Biden and his team say Americans are already seeing the upside with announcements for new computer chip plants and some 6,000 infrastructure projects under way.
“There’s an industrial strategy that actually uses public investments to drive more private capital and more innovation in the historical tradition of everybody from Alexander Hamilton to Abraham Lincoln to John F. Kennedy,” said Brian Deese, director of the White House National Economic Council. “The outcomes speak for themselves.”
Trump’s supporters see little overlap with Biden, even though the funding for infrastructure, computer chip production and scientific research was passed along bipartisan lines.
“The Biden administration agenda is 180 degrees different,” said James Carter, a policy director at the America First Policy Institute. “More regulation, higher taxes, no border control and a war on fossil fuels. It’s two different administrations with two different approaches. One is free market, the other is big government.”
The current and former president seem almost bound together in the public arena. On the August eve of Biden signing into law $280 billion for semiconductors and research, FBI agents raided Trump’s home to retrieve classified documents, overshadowing the White House event. Similarly, Biden called out Trump as a threat to democracy ahead of November midterm elections, while Republicans campaigned by hammering the president for troubling levels of inflation.
Biden aides are quick to say that the president is fulfilling his own campaign promises, rather than honoring pledges made by Trump. But one of Biden’s first moves as president in 2021 was to provide $1,400 in direct payments to Americans as part of his coronavirus relief package. Along with the $600 in payments in a pre-Biden relief package, the sum matched the $2,000 that Trump called for in the twilight of his presidency, though he could not get it through Congress.
“I would want to avoid the premise that somehow what Joe Biden has done was take Donald Trump’s ideas and enact them into law,” Deese said. “What President Biden has done is taken the campaign agenda that he campaigned on and actually delivered on it.”
For all of that, Americans are giving Biden low marks on the economy. Inflation has come down from a 40-year peak this summer, but consumer prices are still 7.1% higher from a year ago. The Federal Reserve is raising its benchmark interest rate to lower inflation, something that its own projections show will cause unemployment to rise in the next year.
Three in four Americans describe the economy as poor, with nearly the same percentage saying the U.S. is on the wrong track, according to a new poll by The Associated Press and NORC Center for Public Affairs Research.
Biden is asking for patience.
“I know it’s been a rough few years for hardworking Americans and for small businesses as well,” Biden said in Tuesday remarks about inflation. “But there are bright spots all across America where we’re beginning to see the impact of our economic strategy, and we’re just getting started.”
Trump supporters blame Biden’s separate $1.9 trillion in coronavirus relief for sparking the inflation, although it contained roughly $400 billion worth of the direct payments that former president said Americans should receive. They argue that the U.S. economy would be stronger if Biden took steps such as allowing all businesses to fully expense their investments in new equipment, instead of providing targeted support to the technology and clean energy sectors.
But even excluding the recession induced by the pandemic, Trump’s economic record was far from sterling as the promised growth never materialized. Manufacturers began to slash jobs in 2019 before the coronavirus spread, instead of the steady resurgence promised by Trump. Annual budget deficits worsened under Trump, but they have improved under Biden as pandemic aid has wound down.
Biden is telling Americans that his policies will strengthen the U.S. economy over the next decade. His $52 billion for computer chip production has led to a series of factory groundbreakings in Arizona, Idaho, New York, North Carolina, Ohio and Texas that will take years to complete. The idea is that government aid reduces risk and makes it easier for these companies to invest in areas where global demand exceed available supplies.
Chris Miller, a Tufts University professor and author of the book “Chip War,” said the incentives are only a fraction of the cost of building the plants. Miller said the benefits of the investments will spill over to the companies that sell raw materials to chipmakers as well as possibly for the makers of autos, electronics and household appliances that increasingly rely on chips.
“The chips funding makes clear that there will be meaningfully more fab construction and chip output in the U.S.,” he said, “so for suppliers to the chip industry, they have more clarity that demand for their products will be larger than it otherwise would have been, incentivizing them to invest too.”
For all the economic concerns, manufacturing has improved under Biden as factory employment totals 12.9 million jobs, the most since December 2008. Just as Biden has boosted domestic investment, he also expanded the Trump administration’s efforts to compete with China and kept his predecessor’s tariffs.
The Biden administration has restricted the export of advanced computer chips and semiconductor equipment, arguing on national security grounds that China is using this technology for surveillance and hypersonic missiles. It’s also formed deeper partnerships with Australia, Japan, South Korea and several European countries to counter China’s rising influence.
Kurt Campbell, Biden’s “Asian tsar” on the White House National Security Council, said that many of the initiatives pursued by Trump’s State Department on China have been “followed on” during Biden’s presidency, saying at an April panel that “in many respects, that’s the highest tribute” to the previous administration.
But Steve Yates, a senior fellow at the America First Policy Institute and former president of Radio Free Asia, said that Biden has not shown that he’s placed the same emphasis on China as Trump.
Yates cited as evidence that Biden’s national security strategy identifies the U.S. as having a shared interest with China in addressing climate change. He said that China will exploit that priority to their advantage as Biden’s willingness to cooperate on climate change will prevent him from confronting Beijing as Trump did.
WASHINGTON — Donald Trump pledged to fix U.S. infrastructure as president. He vowed to take on China and bulk up American manufacturing. He said he would reduce the budget deficit and make the wealthy pay their fair share of taxes.
Yet after two years as president, it’s Joe Biden who is acting on those promises. He jokes that he’s created an “infrastructure decade” after Trump merely managed a near parody of “infrastructure weeks.” His legislative victories are not winning him votes from Trump loyalists or boosting his overall approval ratings. But they reflect a major pivot in how the government interacts with the economy at a time when many Americans fear a recession and broader national decline.
Gone are blanket tax cuts. No more unfettered faith in free trade with non-democracies. The Biden White House has committed more than $1.7 trillion to the belief that a mix of government aid, focused policies and bureaucratic expertise can deliver long-term growth that lifts up the middle class. This reverses the past administration’s view that cutting regulations and taxes boosted investments by businesses that flowed downward to workers.
With new laws in place, Biden is taking the gamble that the federal bureaucracy can successfully implement and deliver on his promises, including after he leaves office.
That is a tricky spot, as Trump himself learned that global crises such as a pandemic can quickly ruin the foundations of an economic agenda, causing businesses and voters to shift priorities. There are few guarantees that the economy behaves over 10 years as government forecasts expect, while Biden’s policies will likely be challenged by the new Republican majority in the House.
Biden and his team say Americans are already seeing the upside with announcements for new computer chip plants and some 6,000 infrastructure projects under way.
“There’s an industrial strategy that actually uses public investments to drive more private capital and more innovation in the historical tradition of everybody from Alexander Hamilton to Abraham Lincoln to John F. Kennedy,” said Brian Deese, director of the White House National Economic Council. “The outcomes speak for themselves.”
Trump’s supporters see little overlap with Biden, even though the funding for infrastructure, computer chip production and scientific research was passed along bipartisan lines.
“The Biden administration agenda is 180 degrees different,” said James Carter, a policy director at the America First Policy Institute. “More regulation, higher taxes, no border control and a war on fossil fuels. It’s two different administrations with two different approaches. One is free market, the other is big government.”
The current and former president seem almost bound together in the public arena. On the August eve of Biden signing into law $280 billion for semiconductors and research, FBI agents raided Trump’s home to retrieve classified documents, overshadowing the White House event. Similarly, Biden called out Trump as a threat to democracy ahead of November midterm elections, while Republicans campaigned by hammering the president for troubling levels of inflation.
Biden aides are quick to say that the president is fulfilling his own campaign promises, rather than honoring pledges made by Trump. But one of Biden’s first moves as president in 2021 was to provide $1,400 in direct payments to Americans as part of his coronavirus relief package. Along with the $600 in payments in a pre-Biden relief package, the sum matched the $2,000 that Trump called for in the twilight of his presidency, though he could not get it through Congress.
“I would want to avoid the premise that somehow what Joe Biden has done was take Donald Trump’s ideas and enact them into law,” Deese said. “What President Biden has done is taken the campaign agenda that he campaigned on and actually delivered on it.”
For all of that, Americans are giving Biden low marks on the economy. Inflation has come down from a 40-year peak this summer, but consumer prices are still 7.1% higher from a year ago. The Federal Reserve is raising its benchmark interest rate to lower inflation, something that its own projections show will cause unemployment to rise in the next year.
Three in four Americans describe the economy as poor, with nearly the same percentage saying the U.S. is on the wrong track, according to a new poll by The Associated Press and NORC Center for Public Affairs Research.
Biden is asking for patience.
“I know it’s been a rough few years for hardworking Americans and for small businesses as well,” Biden said in Tuesday remarks about inflation. “But there are bright spots all across America where we’re beginning to see the impact of our economic strategy, and we’re just getting started.”
Trump supporters blame Biden’s separate $1.9 trillion in coronavirus relief for sparking the inflation, although it contained roughly $400 billion worth of the direct payments that former president said Americans should receive. They argue that the U.S. economy would be stronger if Biden took steps such as allowing all businesses to fully expense their investments in new equipment, instead of providing targeted support to the technology and clean energy sectors.
But even excluding the recession induced by the pandemic, Trump’s economic record was far from sterling as the promised growth never materialized. Manufacturers began to slash jobs in 2019 before the coronavirus spread, instead of the steady resurgence promised by Trump. Annual budget deficits worsened under Trump, but they have improved under Biden as pandemic aid has wound down.
Biden is telling Americans that his policies will strengthen the U.S. economy over the next decade. His $52 billion for computer chip production has led to a series of factory groundbreakings in Arizona, Idaho, New York, North Carolina, Ohio and Texas that will take years to complete. The idea is that government aid reduces risk and makes it easier for these companies to invest in areas where global demand exceed available supplies.
Chris Miller, a Tufts University professor and author of the book “Chip War,” said the incentives are only a fraction of the cost of building the plants. Miller said the benefits of the investments will spill over to the companies that sell raw materials to chipmakers as well as possibly for the makers of autos, electronics and household appliances that increasingly rely on chips.
“The chips funding makes clear that there will be meaningfully more fab construction and chip output in the U.S.,” he said, “so for suppliers to the chip industry, they have more clarity that demand for their products will be larger than it otherwise would have been, incentivizing them to invest too.”
For all the economic concerns, manufacturing has improved under Biden as factory employment totals 12.9 million jobs, the most since December 2008. Just as Biden has boosted domestic investment, he also expanded the Trump administration’s efforts to compete with China and kept his predecessor’s tariffs.
The Biden administration has restricted the export of advanced computer chips and semiconductor equipment, arguing on national security grounds that China is using this technology for surveillance and hypersonic missiles. It’s also formed deeper partnerships with Australia, Japan, South Korea and several European countries to counter China’s rising influence.
Kurt Campbell, Biden’s “Asian tsar” on the White House National Security Council, said that many of the initiatives pursued by Trump’s State Department on China have been “followed on” during Biden’s presidency, saying at an April panel that “in many respects, that’s the highest tribute” to the previous administration.
But Steve Yates, a senior fellow at the America First Policy Institute and former president of Radio Free Asia, said that Biden has not shown that he’s placed the same emphasis on China as Trump.
Yates cited as evidence that Biden’s national security strategy identifies the U.S. as having a shared interest with China in addressing climate change. He said that China will exploit that priority to their advantage as Biden’s willingness to cooperate on climate change will prevent him from confronting Beijing as Trump did.
Millions of U.S. taxpayers are still waiting for their returns to be processed, with an already massive backlog at the IRS growing even larger in the past year, according to a new report from a government watchdog agency.
The backlog of returns has swelled to 12.4 million returns still being processed as of September, an increase of 1.9 million returns from a year earlier, the Government Accountability Office found. As a result, millions of Americans have seen delays in getting their tax refunds, the agency noted.
The GAO’s findings come after three brutal tax filing seasons for many taxpayers, with millions of returns caught in limbo as the pandemic posed a series of challenges for the IRS. The tax agency has subsequently hired thousands of new employees in the hope of being better prepared for the 2023 tax filing season, although the IRS recently warned taxpayers not to bank on getting their refunds by any specific date when they file their returns in early 2023.
“The IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills,” the agency said in a November statement. “Some returns may require additional review and may take longer.”
In 2022, the average tax refund was about $3,100 — bigger than most people’s typical paycheck. Refund delays can put financial pressure on households that were banking on the money to pay down debt, start an emergency fund or make a big purchase.
The tax season typically opens in late January, although the IRS hasn’t yet announced the official start of the 2023 filing season. Many taxpayers plan on receiving their refund within 21 days — but the IRS’ warning last month signals that some Americans may need to wait longer.
Meanwhile, experts are warning taxpayers that their refunds may be smaller in 2023 due to the expiration of many pandemic tax benefits, such as the expanded Child Tax Credit and federal stimulus checks.
The IRS didn’t immediately respond to a request for comment.
Few phone calls answered
The GAO findings echo a report published earlier this year by the National Taxpayer Advocate, an independent watchdog within the IRS that in June found the agency faced an even bigger returns backlog for the 2022 tax season than it did the previous year. The delays created “unprecedented financial difficulties” for taxpayers, the NTA said.
The IRS has received $80 billion in new funding through the Inflation Reduction Act, with about half of the money to be spent on upgrading technology and operations in an effort to avoid the kind of delays experienced in the last three years. The remaining funds will be spent on enforcement, such as hiring auditors who can go after tax cheats.
Taxpayers struggled to get IRS employees on the phone in 2022, even though call volumes were lower than in 2021, the GAO report noted.
“However, even with fewer taxpayers calling IRS for assistance, [customer service representatives] answered less than one out of five calls during the 2022 filing season,” the GAO noted.
The attrition rate among the agency’s returns processing staff stood at about 16% in mid-June, more than double the IRS’ overall attrition rate, the GAO said. And about 1 in 5 new recruits leaves the agency within two or three years.
“For every 10 newly hired returns processing staff, IRS needed about four additional staff to offset attrition,” the report noted.
Millions of U.S. taxpayers could receive a tax refund shock when they file their 2022 returns due to the expiration of many pandemic benefits that lawmakers had designed to help Americans weather the crisis.
That means families may see smaller refunds when they file their taxes in early 2023 for the current tax year, said Mark Steber, chief tax information officer at Jackson Hewitt. The average tax refund in 2022 (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data.
But the benefits that juiced refunds this year have largely lapsed, ranging from federal stimulus checks to the expanded Child Tax Credit (CTC), Steber noted.
Even the IRS is warning taxpayers that checks may be stingier next year. The tax agency cautioned in a November news release: “Refunds may be smaller in 2023.”
Many of the tax benefits still exist, but under current tax law they have reverted to their smaller, pre-pandemic levels, such as in the case of the CTC, which is credited with lifting millions of children out of poverty. The CTC is reverting to its prior level of $2,000 per child, compared with a pandemic credit that was high as $3,600 per kid.
The year 2021 “was quite a remarkable year with the insertion of all those new tax breaks,” Steber noted. “But jump ahead to this year, and a lot of the increases expired, hence the term ‘refund shock’ or ‘refund surprise.’”
The typical tax refund next year could be around $2,700, or roughly what taxpayers got in 2021 (for their 2020 taxes), Steber said. Of course, each taxpayer’s situation is different, with refunds dependent on a number of factors, ranging from an individual’s tax bracket to whether a taxpayer has children.
One rule of thumb recommended by Steber: Don’t look at your tax return from earlier this year to determine what you’ll receive for your refund in 2023.
“You’re probably going to have not as pleasant an experience as you had last year,” he said.
The IRS is also warning taxpayers that they shouldn’t bank on getting their refunds “by a certain date, especially when making major purchases or paying bills.”
It added, “Some returns may require additional review and may take longer.”
Still, taxpayers can take steps to improve their tax situation before year-end. For instance, you could sock away more dollars into a traditional IRA or 401(k) account to take advantaged of their pre-tax contribution rules — every dollar invested in one of these funds lowers your taxable income.
And if you’ve suffered investment losses this year, consider selling one or more of those positions given that you can deduct up to $3,000 in losses against your earnings, lowering your taxable income.
Here are some of the tax changes in 2022 that could impact your refund.
No stimulus check
The government did not issue any stimulus checks issued in 2022, with the third and final payment authorized in the spring of 2021 through the American Rescue Plan Act. Because these checks were paid in 2021, they were reflected in tax returns filed in early 2022 and affected tax refunds received earlier this year.
Some taxpayers relied on their 2021 tax filing to claim more stimulus money, which helped them get bigger refunds. For instance, children born in 2021 generally weren’t included in the third round of stimulus checks because the IRS was relying on 2020 tax returns to establish eligibility — and thus children born in 2021 were initially passed over by the tax agency. However, parents were able to claim the third stimulus check for these children when they filed their taxes earlier this year.
A smaller Child Tax Credit
The Child Tax Credit got supercharged in 2021, with parents of children under 6 receiving $3,600 and parents of children ages 6 to 17 getting $3,000.
But in 2022, that tax credit reverted to its pre-pandemic level of $2,000 per child, regardless of age. While that’s certainly a help, that slimmer tax break could make an impact on parents’ refunds.
Some lawmakers and child advocates are pushing to reinstate the higher CTC amounts, with Representative Adam Schiff, a Democrat from California, this week urging congressional leaders to extend the expanded CTC. But with Congress leaving soon for its holiday recess, it’s unclear whether there will be any traction on this issue.
The Child and Dependent Care Tax Credit
The Child and Dependent Care Credit, which helps parents pay for child care, was boosted under the American Rescue Plan, which raised the credit to up to $8,000 per family.
But that tax credit has also reverted to its pre-pandemic level. Under the current law, parents can receive a credit on their 2022 taxes for up to 35% of up to $6,000 in qualifying child care expenses for two or more children. That means the maximum credit is $2,100 for the current year. (The amount is halved for parents of one child.)
Earned Income Tax Credit
Another tax credit that is less generous this year is the Earned Income Tax Credit, or EITC, which is aimed at low- and moderate-income workers.
During the pandemic, the EITC was increased for a group of workers who typically don’t benefit much from it: Adults without kids. In 2021, low-income workers without children were eligible to receive a credit worth up to $1,500.
This year, the tax credit is reverting to a lower amount for this group — $560 in 2022.
Low-income parents who qualify for the EITC will actually receive slightly higher amounts in 2022, as that figure is adjusted annually for inflation. For instance, this year eligible parents with two children can receive an EITC of $6,164, compared with $5,980 in 2021.
No extra deduction for charitable giving
The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, had a provision that allowed taxpayers to deduct an extra $300 for single taxpayers or $600 for married couples on their 2020 and 2021 taxes.
This provision allowed people who rely on the standard deduction, which represents the majority of taxpayers, to take an extra deduction for charitable giving. But that above-the-line charitable deduction wasn’t renewed in 2022, which means that taxpayers who don’t itemize won’t get an extra deduction for their charitable gifts this year.
Opinions expressed by Entrepreneur contributors are their own.
A nonqualified deferred compensation (NQDC) plan is a great way for employers to attract and retain key talent. It also represents a potentially massive tax savings opportunity for highly compensated employees. There is a lot that you need to know about these plans before deciding to participate in one, however. So, let’s get into the basics.
A nonqualified deferred compensation (NQDC) plan allows employees to earn their pay, potential bonuses and other forms of compensation in one year but receive those earnings in a future year. This also defers the income tax on the compensation. It helps provide income for the future, and there’s a possibility for a reduced amount of income tax payable if the employee is in a lower tax bracket at the time of the deferred payment.
It’s worth noting that tax law requires these NQDC plans to be in writing. There needs to be documentation about the amount being paid, the payment schedule and what the future triggering event will be for compensation to be paid out. There also needs to be an assertion from the employee of their intent to defer the compensation beyond the year.
A NQDC plan is a contractual fringe benefit often included as part of an overall compensation package for key executives. It can serve as an important supplement to traditional retirement savings tools, such as individual retirement accounts — IRA and 401(k) plans.
Like a 401(k), you can defer compensation into the plan, defer taxes on any earnings until you make withdrawals in the future and designate beneficiaries. Unlike a 401(k) plan or traditional IRA, there are no contribution limits for an NQDC — although your employer can set its own limits. Therefore, you can potentially defer up to all your annual bonuses to supplement your retirement. We have seen companies allow you to defer as much as 25-50% of your base salary as well.
Employers: Take note
NQDC plans carry some benefits for employers as well. The plans are a low-cost endeavor. After initial legal and accounting fees, there are no annual payments required. There are no unnecessary filings with government agencies like the Internal Revenue Service.
Since the plans are not qualified, they are not covered under the Employee Retirement Income Security Act (ERISA). This provides a greater amount of flexibility for both employers and employees. Employers can offer NQDC plans to select executives and employees who would benefit the most from them.
Companies can customize plans toward valued members of their workforce, creating incentives for these employees to remain with the company. For example, an employee’s deferred benefits could be rendered forfeit if said employee decides to leave the company before retirement. We call this strategy a “golden handcuffs” approach.
For highly compensated employees, social security and 401(k) can only replace so much of your income in retirement. You could potentially build up the bulk of your retirement savings with your NQDC plan. There’s also the bonus of reducing your annual taxable income by deferring your compensation. This brings into play the idea of being in a lower tax bracket, decreasing the amount of taxes you would need to pay. Many employers even incentivize this, offering a match of some kind.
Timing of payment
The timing of when you take NQDC distributions is important since you’ll need to project your potential cash flow needs and tax liabilities far into the future.
Deferred compensation plans require you to make an upfront election of when you will receive the funds. For example, you might time the payments to come at retirement or when a child is entering college. In addition, the funds could come all at once or in a series of payments. There is tremendous flexibility often in these plans.
Taking a lump-sum payment gives you immediate access to your money upon the distributable event (often retirement or separation of service). While you will be free to invest or spend the money as you wish, you will owe regular income taxes on the entire lump sum and lose the benefit of tax-deferred compounding. If you elect to take the money in installments, the remainder can continue to grow tax-deferred, and you’ll spread out your tax bill over several years.
An NQDC plan does come with some risks. When you participate in a qualified plan, your assets are segregated from company assets, and 100% of your contributions belong to you. Because a Section 409A plan is nonqualified, your assets are tied to your employer’s general assets. In case of bankruptcy, employees with deferrals become unsecured creditors of the company and must line up behind secured creditors in the hopes of getting paid.
Thus, you should consider how much of your wealth — including salary, bonus, stock options and restricted stock — is already tied to the future health and success of one company. Adding deferred compensation exposure may cause you to take on more risk than is appropriate for your personal situation.
Before you choose to participate in an NQDC plan, you should speak with both your financial advisor and your tax professional. You really want to model out how and when you will receive these disbursements. Ideally, you are planning with enough foresight that you will offset this income tax event in retirement with withdrawals from a brokerage account or a Roth IRA or 401(k). You will also want to pay attention to the impact of high income with the taxation of Medicare Part B — if you think there are a lot of moving parts here, you are right! When executed properly, you can truly develop a unique plan that is customized to your exact living situation and future goals.
Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
Many businesses are entitled to the Employee Retention Credit created under the CARES Act, and Innovation Refunds is encouraging them to learn more about the process to get the most out of their refund and avoid engaging with any bad actors in the space.
Press Release –
Dec 13, 2022
DES MOINES, Iowa, December 13, 2022 (Newswire.com)
– While Innovation Refunds and other turnkey tax solution providers have been helping thousands of businesses secure life-changing ERCs (Employee Retention Credits) over the past two years, other players within the space have emerged with less than honorable intentions. According to Innovation Refunds CEO Howard Makler, several ERC mills have been taking advantage of small, vulnerable companies by charging exorbitant fees for ERC verifications and by taking huge percentages of the credit funding upon its approval and issuing.
Congress launched the Employee Retention Credit (ERC) program under the CARES Act in 2020 in response to the COVID-19 outbreak in the United States. The program encourages businesses to keep employees on their payroll by providing refundable tax credits that cover 50% of wages paid by an eligible employer, up to $10,000. Certain companies have qualified for payroll tax refunds of up to $26,000 per employee, even if they have received Paycheck Protection Program (PPP) funds.
The rules and regulations tied to ERC tax credits have been revised multiple times under the CARES Act. This has led to constant confusion among business owners regarding the program’s eligibility requirements. As a result, a litany of ERC companies have surfaced to meet the demand for specialized assistance with the verification and application processes. Often, these firms only manage ERC tax refunds and are always up to date with the latest regulations.
However, per Makler, there are a few key indicators that business owners can use to differentiate real ERC companies from the bad players. By arming themselves with this knowledge, business owners and executives can avoid engaging with corrupt organizations altogether.
Makler noted how the first red flag small businesses should be wary of is any mention of an ERC verification or qualification fee. The verification process itself should have no associated costs whatsoever.
“The Innovation Refunds team has conducted hundreds of verification checks since the launch of the ERC program, never once having charged a small business for said service. Innovation Refunds and other legitimate ERC companies only request payment from small businesses after they have received their tax credit returns,” said Makler.
Makler went on to advise small businesses to do their research when it comes to evaluating ERC-focused firms. Evaluating whether an ERC business has any partnerships in place is critical to determining its level of credibility.
“Testimonials and a proven track record are essential,” said Makler.” “We have helped over 60 community banks educate their clients on ERC, most of which could speak to the value we have brought them through our services and support.”
Ultimately, Makler and the Innovation Refunds team want small businesses to acknowledge the existence of the malicious actors within the space while still making the effort to seek the tax return credits they need and deserve.
“Navigating the ever-changing and confusing world of ERC can be challenging, but conducting quality research into the firms that are supposed to be helping you secure your tax return credit can be the difference between receiving critical support from the government and losing out big time,” said Makler.
As quarterly rollbacks begin to limit ERC claims in the coming months, the Innovation Refunds team aims to serve as a voice of education. Please visit https://www.innovationrefunds.com/ for more information.
About Innovation Refunds
Our mission is to assist small and medium-sized businesses to attain cash incentives from federal and state governments.
Innovation Refunds began providing its services in 2020. Since then, it has been able to provide financial solutions to thousands of companies, with billions in cash refunds available for small and medium-sized businesses.
Millions of U.S. taxpayers could face a tax refund shock when they file their 2022 returns because of the expiration of many pandemic benefits that lawmakers had designed to help Americans weather the crisis.
That means families may see smaller refunds when they file their taxes in early 2023 for the current tax year, said Mark Steber, chief tax information officer at Jackson Hewitt. The average tax refund in 2022 (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data.
But the benefits that juiced refunds this year have largely lapsed, ranging from federal stimulus checks to the expanded Child Tax Credit (CTC), Steber noted.
Many of the tax benefits still exist, but under current tax law they have reverted to their smaller, pre-pandemic levels, such as in the case of the CTC, which is credited with lifting millions of children out of poverty. The CTC is reverting to its prior level of $2,000 per child, compared with a pandemic credit that was high as $3,600 per kid.
The year 2021 “was quite a remarkable year with the insertion of all those new tax breaks,” Steber noted. “But jump ahead to this year, and a lot of the increases expired, hence the term ‘refund shock’ or ‘refund surprise.’”
The typical tax refund next year is likely to be around $2,700, or roughly what taxpayers got in 2021 (for their 2020 taxes), Steber said. Of course, each taxpayer’s situation is different, with refunds dependent on a number of factors, ranging from an individual’s tax bracket to whether a taxpayer has children.
One rule of thumb recommended by Steber: Don’t look at your tax return from earlier this year to determine what you’ll receive for your refund in 2023.
“You’re probably going to have not as pleasant an experience as you had last year,” he said.
Still, taxpayers can take steps to improve their tax situation before year-end. For instance, you could sock away more dollars into a traditional IRA or 401(k) account to take advantaged of their pre-tax contribution rules — every dollar invested in one of these funds lowers your taxable income.
And if you’ve suffered investment losses this year, consider selling one or more of those positions given that you can deduct up to $3,000 in losses against your earnings, lowering your taxable income.
Here are some of the tax changes in 2022 that could impact your refund.
No stimulus check
The government did not issue any stimulus checks issued in 2022, with the third and final payment authorized in the spring of 2021 through the American Rescue Plan Act. Because these checks were paid in 2021, they were reflected in tax returns filed in early 2022 and affected tax refunds received earlier this year.
Some taxpayers relied on their 2021 tax filing to claim more stimulus money, which helped them get bigger refunds. For instance, children born in 2021 generally weren’t included in the third round of stimulus checks because the IRS was relying on 2020 tax returns to establish eligibility — and thus children born in 2021 were initially passed over by the tax agency. However, parents were able to claim the third stimulus check for these children when they filed their taxes earlier this year.
A smaller Child Tax Credit
The Child Tax Credit got supercharged in 2021, with parents of children under 6 receiving $3,600 and parents of children ages 6 to 17 getting $3,000.
But in 2022, that tax credit reverted to its pre-pandemic level of $2,000 per child, regardless of age. While that’s certainly a help, that slimmer tax break could make an impact on parents’ refunds.
Some lawmakers and child advocates are pushing to reinstate the higher CTC amounts, with Representative Adam Schiff, a Democrat from California, this week urging congressional leaders to extend the expanded CTC. But with Congress leaving soon for its holiday recess, it’s unclear whether there will be any traction on this issue.
The Child and Dependent Care Tax Credit
The Child and Dependent Care Credit, which helps parents pay for child care, was boosted under the American Rescue Plan, which raised the credit to up to $8,000 per family.
But that tax credit has also reverted to its pre-pandemic level. Under the current law, parents can receive a credit on their 2022 taxes for up to 35% of up to $6,000 in qualifying child care expenses for two or more children. That means the maximum credit is $2,100 for the current year. (The amount is halved for parents of one child.)
Earned Income Tax Credit
Another tax credit that is less generous this year is the Earned Income Tax Credit, or EITC, which is aimed at low- and moderate-income workers.
During the pandemic, the EITC was increased for a group of workers who typically don’t benefit much from it: Adults without kids. In 2021, low-income workers without children were eligible to receive a credit worth up to $1,500.
This year, the tax credit is reverting to a lower amount for this group — $560 in 2022.
Low-income parents who qualify for the EITC will actually receive slightly higher amounts in 2022, as that figure is adjusted annually for inflation. For instance, this year eligible parents with two children can receive an EITC of $6,164, compared with $5,980 in 2021.
No extra deduction for charitable giving
The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, had a provision that allowed taxpayers to deduct an extra $300 for single taxpayers or $600 for married couples on their 2020 and 2021 taxes.
This provision allowed people who rely on the standard deduction, which represents the majority of taxpayers, to take an extra deduction for charitable giving. But that above-the-line charitable deduction wasn’t renewed in 2022, which means that taxpayers who don’t itemize won’t get an extra deduction for their charitable gifts this year.
Opinions expressed by Entrepreneur contributors are their own.
Come January 3, a new Congress will convene in Washington, DC, setting the stage for potential tax changes that could impact small and medium-sized businesses. With that in mind, it’s important for businesses to engage in certain tax planning strategies and to take advantage of tax credits that will soon expire or be phased out.
The Employee Retention Credit (ERC) is one such credit. Created in 2020 to provide economic relief during the Covid-19 pandemic, the ERC lets businesses claim thousands of dollars in refundable tax credits to compensate for losses experienced in 2020 and 2021 while they continued to pay employees. Businesses subject to a full or partial shutdown or significant decline in gross receipts can qualify.
Many small and midsize businesses I know are eligible for two quarters or more of credits, which can range as high as $7,000 per quarter per employee in 2020, with higher per-employee limits in 2021. But the time frame for claiming this credit is shrinking. Start planning now.
Businesses have just three years from the time they filed their 2020 and 2021 quarterly tax returns to claim the credit. Even if you received funds from the Paycheck Protection Program (PPP) previously you can qualify for the ERC credit, but you’ll need time to gather all the necessary documentation before filing the required amended return.
Beware of companies advertising huge ERC payouts that are “too good to be true,” as the IRS noted in a special warning. The agency further cautioned that “improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”
Know how to find someone who can help you if a problem arises. I had a client who signed a contract with a firm that promised an ERC credit twice as large as what we projected along with lifetime audit protection, but the firm was cagey about how to handle a prospective audit and did not list addresses and phone numbers. A red flag for sure, and a reminder that taxpayers should never get too greedy.
The importance of tax planning
How many business owners can honestly say their accountants are advising them on tax planning, like the ERC benefit, rather than merely doing their taxes? Is yours building a tax-strategy foundation that generates recurring savings year after year?
Take the initiative and ask your accountant what plans they have in place to generate savings year in and year out, plus what strategies they’re using to accomplish that.
Don’t make the mistake of merely asking your accountant how you can save on taxes just before the year’s end. If you do, you may be advised to buy a vehicle for your business because the cost can be fully written off using a bonus depreciation. This is not an example of a great, forward-thinking tax strategy. And that particular deduction, by the way, will lose 20% of its value in each of the next four years, starting in 2023. It’ll be completely phased out by 2027.
Accountants should have a plethora of strategies to help small and midsize businesses and their owners save on taxes. For example, ask yours about research and development credits, or credits for hiring veterans and disabled individuals and members of other groups that the government has identified as facing employment barriers.
How to avoid an audit
It’s more important than ever to use only legal ways to limit your tax liability. Here’s a list of some dos and don’ts:
Don’t put your family vacation on your company’s books. If there is a business purpose for a partial business/family trip and that purpose constitutes more than 50% of the trip, document it and proportionally deduct your costs. Include notes about the purpose of the travel, your itinerary, the agendas of meetings and conferences, whom you met with, etc. The IRS has heightened record-keeping requirements for travel deductions.
Keep original receipts, not just credit card statements. Taxpayers often assume a credit card statement constitutes a receipt. It does not. Your expense items on a credit card receipt only will likely be denied.
Get in a habit of documenting all relevant expenses while you’re incurring them; and consider assigning an employee for that purpose or use technology. You’ve got to document the business reasons for the deductions claimed because there are heightened documentation requirements for business travel and for meals. You probably won’t remember all these necessary details if the IRS audits you two or three years after an event has taken place. If you fail to document actual expenses, you should deduct IRS-published travel per diems by city.
Don’t pay personal expenses through your company. Write a check to yourself from the company for a legitimate reason like a salary, wages or distribution. Then pay personal bills for your mortgage and electric bill out of your checkbook, not the company’s.
The messages are slowly sinking in. Four clients so far have told me they’ve completely revamped their internal processes to take better records. They’re spending the time to do this now because they understand it could be riskier in the future.
Nobody knows what tax changes, if any, are in store, but there are changes already on the books that business owners should be aware of, including benefits that are slated to disappear. Act now before it’s too late.
Many savings accounts, certificates of deposit and money market accounts have enjoyed sizable interest rate bumps in 2022 as the Federal Reserve edges the target federal funds range higher.
Around this time last year, the best high-yield savings accounts earned an average of about 0.5% to 1%. As 2022 comes to a close, you can find online banks offering savings accounts with APYs of 3% and higher.
As long as the Fed keeps raising rates, high-yield savings account rates will keep inching higher.
But all that interest isn’t free money. You have to pay taxes on savings account earnings.
Here’s how it works.
Are Savings Accounts Taxable?
Interest earned on a savings account is considered taxable income by the Internal Revenue Service. That means you need to report it on your tax return.
This includes interest earned from:
If you earned $10 or more in interest from your savings account this year, you’ll receive tax form 1099-INT from your bank or credit union before Jan. 31.
How Is Interest Income From Savings Accounts Taxed?
Savings account interest is taxed at your marginal tax rate, also known as your earned income tax rate. This can range from 10% to 37%, depending on your tax bracket.
Here are the 2022 marginal tax rates (used when filing your taxes in 2023) for reference.
2022 Marginal Tax Rates
Tax Bracket
Single Filer
Married Couple Filing Jointly
10%
Up to $10,275
Up to $20,550
12%
$10,275 to $41,775
$20,550 to $83,550
22%
$41,775 to $89,075
$83,550 to $178,150
24%
$89,075 to $170,050
$178,150 to $340,100
32%
$170,050 to $215,950
$340,100 to $431,900
35%
$215,950 to $539,900
$431,900 to $647,850
37%
Over $539,900
Over $647,850
Your taxable income for the year determines your tax rate for interest income. So if you fall into the 22% tax bracket, all savings account interest gets taxed at 22%.
Interest earned in 2022 must be reported when you file your taxes in 2023.
A few things to keep in mind:
The IRS taxes the annual percentage yield, or APY, of the savings account along with any sign-on bonuses you may have received.
You’re only taxed on the interest you earned: You’re not taxed on all the money in your savings account. (If you earn $20 after depositing $5,000 in a high-yield savings account, you’ll only owe taxes on $20.)
The interest is still considered taxable income, even if you don’t withdraw it from your savings account.
If your modified adjusted gross income is more than $200,000 ($250,000 for married couples) in 2022, you’re also subject to net investment income tax. This tax applies at a rate of 3.8%.
How to Figure Out Your Tax Bill
To figure out how much you’ll owe in taxes, take the amount listed on your 1099-INT and multiply it by your marginal tax rate.
This will give you an idea of the additional taxes you owe, said Erik Goodge, a certified financial planner and president of uVest Advisory Group in Newburgh, Indiana.
“For most people, this will be negligible unless they have large amounts of money in savings accounts,” Goodge said.
How to Report Savings Account Interest at Tax Time
By Jan. 31, your bank or financial institution will send you a form 1099-INT if you earned $10 or more in interest. You’ll report that amount as taxable income when you file.
The IRS won’t know about the interest income if your bank doesn’t issue a 1099-INT. Still, you’re supposed to report all interest earned in the year — even if it’s just a few dollars.
“You should still report it because lying is bad,” said Robert Persichitte, a certified public accountant at Delagify Financial in Arvada, Colorado.
“For most people, it’ll be the difference of $3 or less, which isn’t worth cheating,” he added.
Don’t assume your 1099-INT wasn’t issued, either. While banks aren’t required to issue the form for interest income under $10, many make it available online.
According to Persichitte, you should look for a 1099-INT even if you think your interest income is less than $10.
“Some clients were surprised that a signup bonus, rebate or referral bonus counted as interest and needed to be reported,” Persichitte said.
How to Avoid Tax on Savings Accounts
There’s really no such thing as a tax-free savings account.
But if you’re trying to avoid paying taxes on your savings and investments, there’s a handful of accounts with tax advantages.
None of them are traditional savings accounts, where you can easily transfer money in and out whenever you want without a penalty.
But if you’re looking to save money on taxes — or defer them until later — you’ve got options.
401(k) and IRAs
Traditional 401(k)s and traditional individual retirement accounts let you defer taxes until you withdraw money from the account. Contributions also help lower your taxable income in the year they’re made.
With a Roth IRA or Roth 401(k), you’re investing money after you pay taxes on it, so you won’t owe income taxes when you withdraw funds later. The trade off? Roth contributions don’t lower your taxable income for the year.
IRAs and 401(k)s are investment accounts, not savings accounts. Your money will grow when stocks and mutual funds inside the account gain value. They don’t earn interest like a savings account.
You’ll face an IRS tax penalty for withdrawing funds from traditional retirement accounts before age 59.5.
Savings Bonds
Series EE and Series I bonds from the U.S. Treasury Department accumulate interest like a savings account. The difference: You can elect to defer paying taxes on that interest until you cash in the bond.
Alternatively, you can choose to pay taxes on the interest each year when you file your annual income tax return. The choice is yours.
Government savings bonds aren’t subject to state or local tax. And if you use the money for higher education, you might be able to avoid paying federal income tax on your savings bond interest entirely.
Health Savings Accounts
A health savings account isn’t like a traditional savings account. You can only use the money for qualified health care expenses or else you’ll face a 20% penalty from the IRS. (This penalty goes away when you turn 65).
HSAs accumulate interest but the rates are usually very low. You typically need to maintain a certain balance to get a better APY. HSA Bank, for example, offers 0.05% on accounts with less than $5,000.
If you manage to accumulate any notable interest, you don’t need to pay taxes on it.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
Millions of U.S. taxpayers could face a tax refund shock when they file their 2022 returns because of the expiration of many pandemic benefits that lawmakers had designed to help Americans weather the crisis.
That means families may see smaller refunds when they file their taxes in early 2023 for the current tax year, said Mark Steber, chief tax information officer at Jackson Hewitt. The average tax refund in 2022 (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data.
But the benefits that juiced refunds this year have largely lapsed, ranging from federal stimulus checks to the expanded Child Tax Credit (CTC), Steber noted.
Many of the tax benefits still exist, but under current tax law they have reverted to their smaller, pre-pandemic levels, such as in the case of the CTC, which is credited with lifting millions of children out of poverty. The CTC is reverting to its prior level of $2,000 per child, compared with a pandemic credit that was high as $3,600 per kid.
The year 2021 “was quite a remarkable year with the insertion of all those new tax breaks,” Steber noted. “But jump ahead to this year, and a lot of the increases expired, hence the term ‘refund shock’ or ‘refund surprise.’”
The typical tax refund next year is likely to be around $2,700, or roughly what taxpayers got in 2021 (for their 2020 taxes), Steber said. Of course, each taxpayer’s situation is different, with refunds dependent on a number of factors, ranging from an individual’s tax bracket to whether a taxpayer has children.
One rule of thumb recommended by Steber: Don’t look at your tax return from earlier this year to determine what you’ll receive for your refund in 2023.
“You’re probably going to have not as pleasant an experience as you had last year,” he said.
Still, taxpayers can take steps to improve their tax situation before year-end. For instance, you could sock away more dollars into a traditional IRA or 401(k) account to take advantaged of their pre-tax contribution rules — every dollar invested in one of these funds lowers your taxable income.
And if you’ve suffered investment losses this year, consider selling one or more of those positions given that you can deduct up to $3,000 in losses against your earnings, lowering your taxable income.
Here are some of the tax changes in 2022 that could impact your refund.
No stimulus check
The government did not issue any stimulus checks issued in 2022, with the third and final payment authorized in the spring of 2021 through the American Rescue Plan Act. Because these checks were paid in 2021, they were reflected in tax returns filed in early 2022 and affected tax refunds received earlier this year.
Some taxpayers relied on their 2021 tax filing to claim more stimulus money, which helped them get bigger refunds. For instance, children born in 2021 generally weren’t included in the third round of stimulus checks because the IRS was relying on 2020 tax returns to establish eligibility — and thus children born in 2021 were initially passed over by the tax agency. However, parents were able to claim the third stimulus check for these children when they filed their taxes earlier this year.
A smaller Child Tax Credit
The Child Tax Credit got supercharged in 2021, with parents of children under 6 receiving $3,600 and parents of children ages 6 to 17 getting $3,000.
But in 2022, that tax credit reverted to its pre-pandemic level of $2,000 per child, regardless of age. While that’s certainly a help, that slimmer tax break could make an impact on parents’ refunds.
Some lawmakers and child advocates are pushing to reinstate the higher CTC amounts, with Representative Adam Schiff, a Democrat from California, this week urging congressional leaders to extend the expanded CTC. But with Congress leaving soon for its holiday recess, it’s unclear whether there will be any traction on this issue.
The Child and Dependent Care Tax Credit
The Child and Dependent Care Credit, which helps parents pay for child care, was boosted under the American Rescue Plan, which raised the credit to up to $8,000 per family.
But that tax credit has also reverted to its pre-pandemic level. Under the current law, parents can receive a credit on their 2022 taxes for up to 35% of up to $6,000 in qualifying child care expenses for two or more children. That means the maximum credit is $2,100 for the current year. (The amount is halved for parents of one child.)
Earned Income Tax Credit
Another tax credit that is less generous this year is the Earned Income Tax Credit, or EITC, which is aimed at low- and moderate-income workers.
During the pandemic, the EITC was increased for a group of workers who typically don’t benefit much from it: Adults without kids. In 2021, low-income workers without children were eligible to receive a credit worth up to $1,500.
This year, the tax credit is reverting to a lower amount for this group — $560 in 2022.
Low-income parents who qualify for the EITC will actually receive slightly higher amounts in 2022, as that figure is adjusted annually for inflation. For instance, this year eligible parents with two children can receive an EITC of $6,164, compared with $5,980 in 2021.
The European Union indicated Thursday that it will make cryptocurrency companies report their European users’ holdings to tax authorities. The proposed eighth Directive on Administrative Cooperation was previously reported on by CoinDesk, and could have wide-reaching implications including forcing non-EU based companies to have to register with tax entities there.
In a statement, the EU Commissioner for tax, Paolo Gentiloni said, “Anonymity means that many crypto-asset users making significant profits fall under the radar of national tax authorities. This is not acceptable.”
The enforcement of the measures was not made entirely clear, as the cryptocurrency industry has various entities and actors residing in various jurisdictions, including some who claim no base of operations. Beyond that, there should be concern for the honeypot of user data that registering user holdings creates. Often, holdings on centralized exchanges (which are dangerous in their own right) are paired with sensitive identifying information which could potentially be used by criminals to attach people to their holdings.
There have been various cases of documenteddataleaks in and outside of the cryptocurrency industry: and these are simply the ones that surface. Forcing companies to provide European tax authorities — including companies based outside of the EU — once again forces firms to collect copious amounts of data exposing user holdings, and then transmit them to tax authorities in Europe whom they must trust to keep them safe.
Concerns have also been voiced that this could have ramifications for the EU’s Markets in Crypto Assets Regulation (MiCA) which is the “first all-encompassing effort to tackle cryptoassets and brings rules contained in Mifid, Market Abuse and the Prospectus Regulation to the cryptoasset industry,” according to the International Financial Law Review (IFLR).
The European Crypto Initiative made a statement indicating it was “concerned that it would apply to a far wider range of obliged entities and individuals” than MiCA.
The EU has said it believes the move could generate as much as $2.5 billion (2.4 billion euros) through the introduction of the directive.
If you use third-party payment platforms, like PayPal, Venmo or Cash App, to collect payments for your side gig or business, the Internal Revenue Service (IRS) wants to remind you to report payments of at least $600.
This rule is aimed at individuals who run a side hustle, small business or do part-time work. So if you’re just sending money to friends for a restaurant bill or a vacation, or collecting a one-time payment for selling something online, this won’t apply to you.
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Before 2022, third-party transactions for business owners and side hustlers followed different thresholds: individuals needed to report gross payments exceeding $20,000 and report earnings if they had more than 200 such transactions, according to the IRS. But as a result of the American Rescue Plan Act, any transactions made after March 11, 2021 that exceed $600 must be reported to the IRS, regardless of how many of those transactions you’ve had.
These earnings were already taxable so this is not a change in tax law, but rather just a reporting change.
In order to report these earnings and transactions, you’ll need to file Form 1099-K. According to the IRS, you should receive this form from each third-party payment platform you received transactions through. If you incorrectly receive the form for personal transactions, the IRS recommends you contact the payment platform for a correction or to attach an explanation to your tax return.
Tax season already feels daunting for individuals, but if you’re a business owner — and a new business owner at that — it can feel even more stressful. If you anticipate filing Form 1099-K for this year, make sure you keep an up-to-date record of your transactions, balance sheet and other financial documents. Otherwise, inaccuracies when filing could trigger an IRS audit.
It also helps to work with a professional bookkeeper or accountant who can help you get organized and make sense of your tax liability so you don’t feel blindsided at the last minute. If you need to hire a professional, consider using a business credit card, like the Ink Business Unlimited® Credit Card or the American Express Blue Business Cash Card, so you can get rewarded for the business expense. The Ink Business card lets you earn 1.5% cash back on all business-related expenses and the Blue Business Cash card gives you 2% cash back on eligible business purchases.
Costs may vary depending on the plan selected – see breakdown by plan in the description below
Mobile app
Live support
Better Business Bureau rating
Pros
Simple step-by-step guidance that’s easy to follow
Unlimited on-demand chat or video support with Online Assist plans
Ability to speak to a tax expert who has an average of 10 years experience (costs extra)
Over 11,000 physical locations so you can meet with a tax expert in-person
Maximum refund guarantee, or H&R Block will refund the plan fees you paid
Audit support guarantee, which provides free assistance if you get an IRS or other tax notice
100% accuracy, or H&R Block will reimburse you for any penalties or interest up to $10,000
Cons
Plans that include speaking with a live tax expert cost more for federal returns
One of the more costly software programs
Cost breakdown by plan:
Self-employed (for personal and business income and expenses): $91.99 federal, $44.99 per state per state
Online Assist Self-employed (includes help from tax experts): $194.99 federal, $44.99 per state
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
The company aims to help banks become advisors for their clients, so they can take advantage of the payroll tax credit.
Press Release –
Nov 21, 2022 07:00 CST
DES MOINES, Iowa, November 21, 2022 (Newswire.com)
– The Employee Retention Credit (ERC) can provide a critical payroll tax refund for businesses. Innovation Refunds, an industry leader in turnkey tax solutions, is advising banks on how they can assist their clients in qualifying for the tax credit.
Innovation Refunds recently attended the American Bankers Association annual convention, providing banks with guidance on how they help their clients with ERC. Just as banks educated and connected clients with the Small Business Administration’s Paycheck Protection Program (PPP) loans, they now can play a similar role with the ERC.
Qualifying for the ERC could make or break a business in today’s economy. With the ERC, companies are eligible for a payroll tax refund of up to $26,000 per employee, even if they have received PPP funds. The average refund is over $400K through Innovation Refund’s bank partners.
Innovation Refunds, which does not charge any upfront costs when verifying businesses for ERC, has now empowered more than 60 community banks in helping their clients receive payroll refund money. The company specializes solely in ERC, which enables its team members to be experts on the most up-to-date changes in rules and regulations.
“Banks can play a critical role by being an advisor to clients and educating them about the availability of the ERC to ensure the money gets back into the hands of small and middle-sized businesses that were impacted by the pandemic,” said Howard Makler, CEO of Innovation Refunds.
Innovation Refunds assists banks in developing marketing campaigns around the ERC to spread awareness to banks’ small and medium-sized business clients on what they can do to apply for the ERC. This is achieved through a comprehensive strategy that includes social posts, email playbooks, direct mailers, email blasts, text messages, and other tactical channels. All of these assets are customized to each bank’s branding.
“The ability to receive ERC funds will expire gradually by late 2024, so time is of the essence to offer this critical education,” Makler said. “Innovation Refunds wants to be the marketing engine that offers a turnkey solution to help banks send this message to their business clients and make it easy for them to spread the word.”
The Internal Revenue Service (IRS) anticipates that 70-80% of businesses are good candidates for the ERC. Qualifying for the payroll tax refund can be a game-changer for a company that has been impacted by the pandemic, and Innovation Refunds is a valuable resource in helping them avoid leaving money on the table.
To partner with Innovation Refunds, email bankpartner@innovationrefunds.com. To learn more, visit www.innovationrefunds.com.
About Innovation Refunds Our mission is to assist small and medium-sized businesses to attain cash incentives from federal and state governments. Innovation Refunds began providing its services in 2020. Since then, it has been able to provide financial solutions to thousands of companies, with billions in cash refunds available for small and medium-sized businesses. To learn more, visit www.innovationrefunds.com.
Opinions expressed by Entrepreneur contributors are their own.
In July, world leaders agreed to impose extra import tariffs on Russia during the G7 Summit, but the impact has been felt in other countries, including the U.S., with trade reduced by an estimated 62%, according to an analysis of the economic consequences of war. Russia’s war with Ukraine, and the subsequent trade sanctions placed on Russia, have impacted many businesses that rely on overseas trade. Now, businesses with overseas suppliers need to prepare for the uncertainty of trade tensions, tariffs and even the potential for embargos as the war escalates.
Just look at Shell. When they ceased operation and use of any Russian properties or partnerships for their oil production, they certainly felt the impact. Shell, like many other energy companies, had to fill the void left after they their relationship ended with Russian energy. Ultimately, this led to a rise in oil and gas prices across the world. This isn’t something felt only by big business, though, as everyone deals with the impact of tariffs either directly or indirectly.
If your business is facing tariffs, trade sanctions or the effects of war, here are some strategies to plan against the potential threat it could pose to your business internationally.
Up until June of this year, the U.S.’s whiskey industry experienced lean times while exporting to the U.K. and EU, as Trump-era disputes over steel and aluminum trade resulted in steep tariffs on American whiskey. The whiskey companies had to monitor their profit margins and the number of tariffs their profits could take.
For international businesses experiencing periods of higher tariffs, it requires analyzing what costs can be absorbed and covered, and what sorts of belt-tightening and cost-cutting could help mitigate the impact of tariffs and to offset their cost on your business. While cutting costs can help improve profit margins, the negative effects of the tariff still exist, but at least consumers won’t see a drastic increase in price of your product. It’s all a matter of how much your business can stand to lose in profit margin and remain profitable domestically and abroad or if it can at all.
Pass the cost onto the consumer
On the other hand, a business always has the option to raise its prices to offset the tariffs’ impact on its bottom line. With that, however, comes the risk that customers may no longer want to buy your product.
Harvard Business Review emphasized that risk can be offset, though, if your business has an honest approach to explaining why it’s raising its prices. Communication is key. Leveling with your customers and being honest regarding the realistic implications of a trade war go a long way.
Transferring the risk by insuring against it is another option. Risks from tariffs can, in many cases, be included in Business Interruption Due to Legislative insurance. However, the trade-related risk is ever-evolving and complex, which can make it difficult and costly to insure in the third-party commercial insurance market. This is where captive insurance can be an option.
Captive policies often have fewer policy exclusions than commercial insurance policies. Captive insurance also negates the perceived sunk cost of paying insurance for a risk that doesn’t materialize.
For example, insuring against tariff risk for 10 years without any losses to tariffs occurring over the course of those 10 years would equate to money out the door. Outside of the comfort of knowing you’re insured, the business really has nothing to show for the premiums paid over that decade.
With captive insurance, however, your business can retain profits when claims aren’t paid. Thus, allowing for a build-up of cash reserves and benefiting the balance sheet of your business. This makes captive insurance a very effective tool especially in times like now where many businesses have been left scrambling after the sweeping sanctions against Russia and high inflation.
Decide whether to exit a market or category completely or find a supplier not subject to tariffs
Tariffs cut both ways, even though they exist to operate as barriers to prevent competing foreign products and businesses from damaging domestic industries. Just look to the specific industry of washing machines as tariffs introduced by the U.S. during the Trump presidency resulted in washer prices rising by almost 12%, according to economists at the University of Chicago and Federal Reserve.
This resulted in domestic business owners being left having to pay their own domestic government tariffs for buying the products instead of the country they imported them from. As you can imagine, this has implications for international business owners as well, especially in industries like agriculture where the World Trade Organization cites 100% of products as having a tariff.
For the businesses and consumers that needed those washers, they were left paying the increased price for them instead of China or other countries targeted by U.S. tariffs. According to UCLA Anderson Review, additional studies have also concluded that the trade war hurt U.S. consumers and companies more than it did China.
The example illustrates why having an international supplier that isn’t affected by the sanctions or tariffs faced by your company or products from your country is very important. This option is, however, mostly reserved for businesses that can afford to move major portions of their supply chain to other countries — making this option limited to few businesses. Partnering with a business in a country without the same tariffs or sanctions is also an option, but again, has many logistical complexities few businesses are prepared for.
Although there are immediate implications concerning the sanctions against Russia that can potentially decimate a supply chain, it’s crucial for businesses to keep in mind that the impact will also be felt long-term. Trade wars typically slow economic growth. Thus, it behooves businesses to start now and conduct a risk assessment in relation to both the sanctions and the potential for an economic slowdown. Even if your business isn’t impacted now, it could be in the future.
Employers typically offer a period of open enrollment in the fall, when their workers are allowed to pick new health plans, enroll in a Flexible Spending Account or make other changes to their benefits. This year, there are some changes ahead that could help employees, while also potentially opening up some financial pitfalls.
Among the biggest changes for 2023 are with two tax-advantaged health savings accounts — Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). These accounts can save workers a nice chunk of change by allowing them to sock away pre-tax money to pay for medical expenses. Basically, you save what you would have paid in taxes on money you put in the accounts.
In 2023, employees can put away as much as $3,050 in an FSA, an increase of about 7% from the current tax year’s cap of $2,850. Meanwhile, single workers who want to fund an HSA can save up to $3,850 next year, a 5.5% increase from 2022, while families can save up to $7,750, up 6.2%.
Those increases are helpful at a time when inflation is at it highest in four decades, with consumer prices having jumped more than 8% from a year ago. But there are several “gotchas” that workers need to be aware of, especially when it comes to Flexible Spending Accounts, with the foremost being that FSAs are “use-it-or-lose-it” programs. In other words, if you don’t use all the money you set aside, you’ll lose it — your employer keeps any unused funds.
“Open enrollment typically opens in late October and early November,” said Lisa Myers, director of client services, benefits accounts, at Willis Towers Watson. “Planning carefully is important, and knowing the deadlines.”
Indeed, U.S. workers end up forfeiting a total of about $3 billion a year in unused FSA funds, according to an analysis from Money.
Here’s what to consider during open enrollment.
What’s the difference between an FSA and HSA?
Both accounts are aimed at helping workers pay for medical expenses with pre-tax money. The biggest difference is that FSAs are controlled by your employer, while HSAs are owned by the individual.
That means that if you leave your job, your FSA won’t move with you. But once you open and fund an HSA, that account does stay with you, like your 401(k), which continues to be yours even after you leave a job and start at a new employer.
Another big difference: Health Savings Accounts are designed for people with high-deductible health care plans. This means that not every employee will have access to an HSA.
HSAs generally have more flexibility than FSAs. For instance, unused funds roll over each year, unlike with a FSA, where funds are forfeited if not used by your employer’s claim deadline. And you can change your contributions to your HSA at any time; with a FSA, contributions are set during open enrollment.
“Funds go into this account on a pre-tax basis, they can grow over time, including be invested, and as long as they’re eventually used on medical expenses is also tax free,” Stephen Durso, associate director of benefit accounts at Willis Towers Watson, told CBS News.
“So that kind of triple-tax savings benefit is really unmatched based on the available types of accounts. If you have an HSA available, it really is an attractive option for you,” he added.
Can I enroll in both an FSA and HSA?
Generally, no, noted Myers of Willis Towers Watson. However, people with HSAs can opt for a slimmed-down version of a Flexible Spending Account, known as a “limited purpose FSA.” These accounts can only be used for vision and dental expenses, which shrinks their usefulness.
That means employees who qualify for both programs will generally need to decide whether it makes more sense to fund either an FSA or an HSA for 2023.
How much should I set aside for 2023?
Some employers offer tools to help workers estimate their potential annual health costs, but you can also look at your out-of-pocket medical expenses for the past year to help gauge your likely expenditures for the upcoming year, Myers said.
People with HSAs also may want to set aside the amount that they’ll pay due to their health plan deductible, since that’s out-of-pocket spending that they could get reimbursed through that tax-advantaged account.
There’s more at stake for people who are opting for FSAs, since overestimating your medical expenses could leave money sitting in your account that eventually returns to your employer.
What deadlines should I be aware of?
You’ll need to stay on top of the deadline for claiming your FSA funds.
Employers can give employees a grace period of up to two and a half months after the end of a calendar year to claim the money. But you’ll have to check if your company offers extra time and mark on your calendar when you’ll need to claim the money by.
Some employees may be surprised by deadlines this year because a pandemic stimulus bill and the IRS relaxed the rules for claiming FSA funds, providing more time for people to file claims in 2020 and 2021. But those provisions have expired, which means people with FSAs in 2022 must claim their money by year-end or by an employer’s grace period in early 2023.
“That was temporary relief due to the pandemic, so employees may have larger than usual balances in their health and dependent-care FSAs, and that they may forfeit going into 2023,” Myers said. “It’s important to check your balances, check the plan rules, so they can plan their spending for the remainder of 2022.”
What can I spend my FSA money on?
Employees are sometimes surprised at what their FSA plans will cover, including Band-Aids, reading glasses, first-aid kits and over-the-counter medicine, Myers said.
She recommends that people check the FSAStore.com, which carries all FSA-eligible items, especially if you are getting close to your deadline for claiming your funds and need to use the money.
Myers also advises that you check your 2022 FSA balance and claim deadlines now, rather than waiting until the end of the year. Generally, a health service or good must be purchased in 2022 to qualify for a 2022 FSA claim, so waiting until the last minute to try to spend the funds could increase your risk of running into a barrier — such as if your eye doctor is booked up, which could hinder renewing your prescription to get new glasses.
As the year ends, you might be wondering about next year’s tax bill.
Will you get a refund? Or will you owe Uncle Sam money?
Even if you’ve already earned most of your income for the year, you can still make changes to soften next year’s tax bite.
Don’t worry, we’re not talking about tax evasion, but there are some totally legit ways to keep more of your hard-earned dollars in your pocket.
9 Simple Ways to Pay Less Taxes in 2023
Here are several ways to save money on taxes before the new year begins.
Step up your 401(k) contributions
Max out a traditional IRA
Contribute to a health savings account
Don’t forget your FSA or dependent care expenses
Save money for your kid’s college fund
Pay off some student loan debt
Know your itemized deductions
Take advantage of tax credits
Adjust your withholdings
1. Step Up Your 401(k) Contributions
Lowering your taxable income is one of the best ways to pay less in taxes.
The easiest way to reduce your taxable income is to contribute to tax-deferred retirement accounts, like your company’s 401(k) plan or some other type of workplace retirement plan, like a 403(b) plan.
Money you contribute to a 401(k) is pre-tax money and it helps lower your taxable income for the year you make the contribution. Less income means less money you pay to the government.
So, if you make $50,000 in 2022 and contribute $3,000 to your workplace 401(K), it looks like you only made $47,000 in the eyes of the IRS.
For 2022, you can contribute up to $20,500 for those under 50, and up to $27,000 for those 50 and older. This doesn’t include the amount your employer contributes to your plan.
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2. Max Out a Traditional IRA
Just like that company-sponsored retirement plan we were talking about, the funds you contribute to your traditional individual retirement account (IRA) don’t count toward your taxable income.
This type of retirement account is different from a Roth IRA, where contributions are taxed today but then grow tax-free thereafter.
For 2022, you can contribute up to $6,000 to an IRA, or $7,000 if you’re over the age of 50.
You have until April 18, 2023, to max out your IRA contribution for the 2022 calendar year.
An important caveat: You may not get the full tax benefit of contributing to both a 401(k) and an IRA if you or your spouse is covered by an employer-sponsored retirement plan.
If you have access to a 401(k), you need to make less than $68,000 in 2022 as a single person (or $109,000 as a married couple) to get the full IRA tax deduction. The tax benefit phases out for people with higher incomes who are covered by an employer retirement plan.
Head to the IRS website for full details on these phase-out limits.
3. Contribute to a Health Savings Account
A health savings account (HSA), is a great tax-exempt option if you have a high deductible health plan.
Your payroll contributions to an HSA are made with pre-tax income (aka you’re not taxed) and neither are your withdrawals, as long as they’re used to pay medical expenses that are qualified.
In 2022, the annual contribution limit is $3,650 for self-only coverage and $7,300 for family coverage. People 55 and older can contribute an extra $1,000 as a catch-up contribution
You can also make direct contributions to your HSA on your own and claim a tax deduction for that amount when you file your tax return. This can be a quick and easy way to reduce your tax burden before the end of the year.
Just remember: Your payroll HSA contributions and your personal contributions combined cannot exceed the annual limit.
You can leave funds in your HSA indefinitely since they’re not subject to required minimum distributions. (And if you’re like most of us, you’ll have more health care-related costs as you get older, anyway.)
4. Don’t Forget Your FSA or Dependent Care Expenses
A flexible spending account (FSA) is similar to an HSA in that you’re allowed to contribute pre-tax dollars from your paycheck each year.
And yes, that means you can reduce your taxable income with an FSA, therefore paying less in taxes.
The limit in 2022 is $3,050.
Keep in mind you’ll have to use up the money during the calendar year on qualifying expenses for you and qualifying dependents.
Have dependents — aka children or elderly members of your household — you’re taking care of? If your employer offers a dependent care FSA account, you can contribute up to $5,000 in pre-tax dollars to go toward expenses such as day care, after-school care and preschool.
If you’ve got kids, chances are you’re already gritting your teeth thinking about paying for college.
According to the National Center of Education Statistics, the average cost of college tuition is about $9,400 per year at a public school and $37,600 per year at a private institution (yikes!).
To help pay these costs and hopefully save yourself some money on taxes, consider opening a 529 savings plan.
This account is an investment vehicle specifically built for educational savings. You can use it to pay for your kids’ college tuition or even to send yourself or your spouse to school.
The exact tax benefits vary by state — more than 30 states offer full or partial tax deduction or credits on 529 contributions.
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6. Pay Off Some Student Loan Debt
Depending on your modified adjusted gross income (MAGI), you may be able to deduct up to $2,500 in student loan interest when you file taxes.
This is an “above-the-line” deduction, which means you can take it even if you opt for the standard deduction.
If you still have a loan balance after receiving the forgiveness, consider paying off some interest on your loans before the end of 2022 to receive a tax deduction.
7. Know Your Itemized Deductions
Several tax deductions are only available if you itemize.
A majority of Americans — about 85% — take the standard deduction, which is $12,950 for single filers or $25,900 for joint filers for the 2022 tax year.
Itemizing only makes sense if you have enough deductions to exceed the standard deduction — which most people don’t.
If you itemize your taxes, here are a few deductions that can help lower your tax bill.
Major medical bills: In general, if you’ve spent more than 7.5% of your adjusted gross income (AGI) on qualified medical expenses, you may be able to write them off if you itemize your deductions.
Charitable donations: Looking for a way to pay less in taxes … and get that warm, fuzzy feeling? Charitable contributions are tax-deductible if you itemize your deductions. Make sure to track the estimated value of your contributions to save you time when you file.
Mortgage interest and local property taxes: These may both be eligible for partial deductions, though you’ll need to itemize your tax return.
Business-related deductions: If you’re a freelancer or you work from home, you should also look into business-related deductions, like the cost of your home office space.
You might also be able to deduct certain supplies, travel expenses and even meals and entertainment.
8. Take Advantage of Tax Credits
In certain scenarios, the IRS extends tax credits to eligible taxpayers. Tax credits count as an actual reduction of your total tax bill. (Remember: Tax deductions reduce your taxable income.)
If the tax credit is refundable, you’ll get a refund if your tax credits exceed what you owe.
For instance, if you would have owed $500 and claim $1,000 in tax credits, not only will your payment be waived — you’ll also receive a $500 tax refund.
Here are a few tax credits you may qualify for:
American Opportunity or Lifetime Learning Credits: Depending on your enrollment status, AGI, and how you’ve paid for educational expenses, you may be entitled to the American Opportunity or Lifetime Learning Credits. (Check out this quick quiz from the IRS, which will tell you if you’re qualified in just 10 minutes.)
Earned Income Tax Credit: Low- to moderate-income workers may be eligible to claim the Earned Income Tax Credit, one of the federal government’s largest refundable tax credits. You could be eligible for up to $6,935 in federal income tax credits, though the exact amount depends on your income, marital status and number of qualified dependents.
You can also qualify as a single person with no dependents if your AGI is below $16,480 in 2022. (College students and retirees with part-time jobs — we’re looking at you.) For details, check out the IRS’ Earned Income Tax Credit fact sheet.
Saver’s Credit: If you’re a low- or middle-income worker, you can claim the Saver’s Credit by adding money to a 401(k) or IRA. The credit is worth up to $1,000 for single filers or $2,000 for married couples.
Your AGI needs to be below $34,000 if you’re single or $68,000 if you’re married to qualify for the Saver’s Credit. But get this: You can claim the credit in addition to any tax deduction you receive by making qualified retirement savings contributions.
9. Adjust Your Withholdings
The W-4 tax form is one you give to your employer specifying how much of your wages should be withheld for taxes.
It might seem intuitive to keep your withholdings as low as possible to keep more of your paycheck. However, if you find you owe taxes in April, you might want to go in and tweak your withholding claim so you don’t run into the same problem each tax season.
Jamie Cattanach is a former contributor to The Penny Hoarder.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
In his first presidential address to Congress, President Biden said it’s time for large companies and wealthy Americans to pay their fair share of taxes. Watch his remarks and read more here.
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A man displays his Powerball lottery numbers after buying a ticket at a convenience store in Miami, Wednesday, Nov. 2, 2022. Rebecca Blackwell/AP Photo
So, who wants to be a billionaire?
There have been nearly 40 Powerball drawings in a row with no grand prize winner, so Saturday night’s jackpot has ballooned to $1.5 billion. That’s nearly the all-time record.
Now, as professional Penny Hoarders, we generally advise against spending your hard-earned money on lottery tickets. (Invest it instead!) Your chances of winning Powerball are 1 in 292 million, which is lower than your chances of being struck by lightning — twice.
But it’s still fun to think about, isn’t it? We all deserve to dream a little, and a tidy $1.5 billion would go a long way toward clearing up any pesky little financial problems you might have.
How much of those winnings would you actually get, though?
How Much of That $1.5 Billion Would You Take Home?
Let’s say you win. (It is fun to think about, after all.)
First you’d have to choose whether to collect your winnings in 30 annual payments over three decades, or to take a smaller lump-sum payment, which in this case would be $745.9 million, according to Powerball administrators.
Then there are taxes. (There are always taxes.)
If you took the lump sum, you’d immediately get hit with federal taxes of 24% that’s collected on any prize exceeding $5,000 — so that’s about $179 million right off the top. You’d also owe more when you file your income taxes next year since you’d be in the top tax bracket — so 37%, or about $97 million, according to popular lottery-news websites like USA Mega and others.
That brings your theoretical winnings to about $470 million. You’d also pay state taxes. How much obviously depends on which state you’re in.
If you chose the annual-payments option, your $1.5 billion jackpot would get split into 30 payments that averaged out to $50 million each. Those would be subject to an immediate 24% federal tax, plus the 37% income tax each year, so you’d be getting a little over $31.5 million per year. After 30 years, you’d have collected between $782 million and $945 million, depending on what you’re paying in state taxes.
Which to choose? Financial advisors always say it depends on your age, your goals, and various tax reasons, and blah blah blah.
But realistically, nearly everyone takes the one-time cash payment. Seriously, almost everyone. Simply put, you can earn more over time by investing the lump sum, and nobody wants to wait 30 years to collect all their money.
You’ve Won Powerball. What Now?
No matter how you count it, a $1.5 billion grand prize is certainly a lot. The biggest Powerball jackpot ever was $1.586 billion, shared by three winners in 2016.
Even if you took the lump sum and paid taxes on it, the $470 million you’d have left is still no chump change.
If you won, financial advisers would strongly recommend that you get a tax attorney and a tax accountant and make a plan before you collect your winnings. You’d have 90 days to a year to claim your jackpot, depending on where you bought the winning ticket.
They also recommend that you employ someone whose job it is to say “NO” to everyone and their brother who’ll suddenly want you to invest in their once-in-a-lifetime business opportunity, their newly invented revolutionary gizmo, their super-sweet NFTs, or their miscellaneous harebrained scheme.
Powerball is played in 45 states as well as Washington, D.C., Puerto Rico and the U.S. Virgin Islands.
If a lucky winner claims the $1.5 billion grand prize in Saturday night’s drawing, the next Powerball jackpot automatically drops back down to a mere $20 million — practically pennies in comparison, right?
So think about it. Powerball tickets cost $2. Maybe spend a little money on that dream.
