Your Financial Future
Many people are in the process of collecting all of their 2023 tax information so that they or their tax preparer can get the return filed by April 15th. It is important to have accurate records especially for tax payers who operate businesses.
Sometimes a second tax return will try to claim the same Social Security number that has already been used on another return. This might be fraud where someone is filing a false return trying to get a refund that they are not entitled too. This also sometimes happens in child custody cases where both parents try to claim the same child. The family courts will determine which party gets to use each child’s SS number. The IRS will often immediately recognize a number has been entered into the system a second time and may require a paper return to be filed. They also could hold up any refund due on both returns until the matter is resolved. It is much easier for them to delay distributing money than to collect from the ineligible party.
There was a change a couple of years ago dealing with the tax status for alimony. It used to be taxable to the receiver and a deduction to the payor. This is no longer true. Now the person receiving court ordered alimony does not have to pay income tax on this payment and the payor does not get a deduction. Child support was never taxable to the party receiving it.
When SS first started, it was not taxable to anyone. The argument was that it was a tax when you paid it so it should not be taxed again when you received benefits. This first changed in 1983 when Ronald Reagan and Tip O Neal had to make changes to save the Social Security program. Bill Clinton later added more taxes to fund some other program. Today, SS can be taxed at 0%, 50% or 85% depending on your other income.
The IRS enforces tax compliance through the threat of a tax audit. While the odds of being selected for an audit for ordinary income earners is low, there are some red flags that increase your chances of being selected. The first is missing income. Workers receive a W2 to report their earnings. Many investments and other entities issue 1099s. These reports are sent to both the tax payers and the IRS. If you do not report this information the matching system will kick out your return for review. The government has PayPal, eBay Amazon and other sites issuing 1099s to monitor gig workers.
Another audit flag would be unreasonable tax breaks. If you are making charitable contributions at much higher level than most people with your income level, it could be a red flag. Most people do not get to write off these deductions unless they itemize their return. Claiming large amounts of milage for gig workers could also draw attention. Make sure you have complete records to back up your claims.
While April 15th is the normal date that your returns is required to meet, you can get an automatic extension of 180 days by filing form 4868. It is important to remember that filing this form does not give you extension in time to pay taxes. You must estimate your total due and send it in. The IRS can make arrangements with tax payer on an installment plan if you cannot afford to pay all of your taxes at one time.
There is an increase of identity theft during tax time. You may receive fake emails requesting information pretending to be the IRS. They do not use this method of communicating. Sometimes you might be told that the police will come and arrest you if you do not meet certain commands. The police do not work for the IRS. If you are ever asked to pay in gift cards, bitcoin or some other unusual way, this is a scam. The government will never make this type of request. Be careful what personal information you may leave exposed.
Smart tax payers are actually already considering how to reduce their tax bills in the future. Visit the website www.TheTaxMinute.com. In under a minute, it can give you an idea how much you may owe in the future and some ideas to reduce that burden.