Tax season is here: Here are a few things to consider before you file
Do taxes typically trip you up? Here's what to expect this tax season, and what to keep in mind as you prepare to file.
Tax season has officially started; the IRS started accepting tax returns on January 23. No matter whether you’re an early filer or if you tend to wait until closer to tax day, there are a few things to keep in mind.
First, the basics of the 2023 tax season:
- Tax filing deadline: April 18, 2023
- Extension deadline: October 16, 2023
Could you get a smaller tax refund this year?
The IRS is warning that some taxpayers may have smaller refunds. Aside from the fact that taxpayers are not getting an additional stimulus payment, there are a few other changes that might make your refund smaller this year:
A higher standard deduction.
For tax year 2022, the standard deduction increased to $12,950 for single filers and $25,900 for married couples filing jointly. It’s higher than previous years, which means it will be harder for some taxpayers to claim charitable deductions — a common way to reduce tax liability.
Child tax credit.
Tax year 2021 featured an enhanced child tax credit of $3,000 for children under 18 and $3,600 for children under 6. For 2022, it’s back to the old rules: $2,000 for children under 17.
Deducting charitable donations is typically reserved for taxpayers who itemize deductions. Pandemic-era policies allowed all taxpayers to deduct $300 ($600 for married couples) worth of charitable donations even if they took the standard deduction, but once again, it’s back to the pre-pandemic tax rules, meaning that deduction will not be available for the 2022 tax year.
Remember: The goal is not to get a big tax refund. A tax refund means you gave the government an interest-free loan for a year. What you should be doing is adjusting your withholding so you don’t owe taxes and you don’t get a refund from the IRS every year. That way, you keep that hard-earned income in your pocket.
Timing of refunds.
Typically, you should receive your refund in 21 days. To avoid delays, file an electronic, error-free tax return with direct deposit for payments. Do not send a paper return or request a refund check.
Be sure to proofread your return for essential details and basic mistakes such as typos in your name, address, banking details or social security number. Mistakes can delay your refund.
To find out when your refund is coming, use the tracking tool on the IRS website beginning 24 hours after e-filing your return. You’ll need your exact refund amount, Social Security number or taxpayer ID number, and filing status.
What to do with a tax refund.
When you get your refund, this is not the time to go on a spending spree. It’s better to save your refund this year. Having a bigger financial cushion is essential during a time of economic uncertainty.
It would be better to put that cash in a high-yield savings account, increase your emergency funds or contribute to an IRA. If there is any debt you may be behind on, catch up on those payments — or, if possible, pay off the debt entirely.
This year, use that refund to increase financial stability.
What if I end up owing and I cannot pay my tax bill?
If you can’t afford to pay your tax bill in full on the deadline, don’t pull out your credit card or ignore the situation.The IRS offers reasonable payment plans at much lower interest rates than most banks. You may even be able to settle the bill for less than you owe, called an offer in compromise, or request a deferment until you can make a payment. Offers in compromise and requests for deferment require additional paperwork and must be approved by the IRS.
How to get an extension if you need one.
A tax extension gives you until Oct. 16 to file a tax return. A tax extension gives you an extension to file, but doesn’t give you an extension if you owe money to the IRS.
You can electronically file Form 4868 with the IRS to receive the extension. But if you owe money to the IRS, you will still need to make a payment by April 18th to avoid interest and penalty on what you owe.
Regardless of why you need to file an extension, it’s free. Take advantage of this if you don’t think you will be able to meet the April 18th deadline.
Tip: File early, but don’t rush. Make sure your return is correct before you file it, and if and when you get a refund, use it wisely. If you find that you have a tax bill, get on a payment plan. Don’t procrastinate and leave this to the last minute.
Your tax return is an essential part of your financial plan. Handle it wisely.
Jennifer Streaks is Senior Personal Finance Reporter and spokesperson at Business Insider and a financial contributor at The Grio. A nationally recognized expert on money and affordable lifestyle living, Jennifer is an established financial columnist who has been featured on CNBC, Forbes, ABC, MSNBC, CBS, and more.
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