Don't Mess With Taxes

Every filing season, eager taxpayers, most of them expecting a refund, send their returns to the Internal Revenue Service as soon as they can.

For most it works out OK.

Others, however, discover on their own, or learn from the IRS, something just not quite right, and costly, on their Form 1040.

It works the other way, too. In some instances, folks submit a return without claiming a tax break that would have saved them dollars. The IRS isn't going to tell you about that!

The best way to make sure you enter all the data that the IRS wants, along with all the info that will get you the best possible tax result is to, well, have all the information at hand before you file.

My earlier post on tax documents you need to file your 2022 return can help with the pre-filing material gathering.

But you also need to take a good look at your personal situation and answer some questions. The responses could affect how much you owe or will get back as a tax refund.

If you use a tax professional to help you file, you're probably familiar with these questions. But just in case you do your own taxes, or you want a refresher, here goes this year's tax filing checklist.

Start with last year: Pull out your 2021 tax return. Your tax life back then might have been different because of the effects of the COVID-19 pandemic, but it's still a good place to start.

You'll also want to dig out that copy of last year's state tax filing if you live in a state that collects an income tax.

Even if there have been some changes in your life, your old filings are good templates. They show your income sources — wages, any self-employment gigs (or full-time work), investment earnings — and what tax deductions and credits you were able to claim back then.

Again, some of this info will be in the aforementioned tax statements you'll get by the end of this month. But your previous returns could help you ensure you get all of them this.

Plus, these documents will have some data — for example, Social Security numbers (yours, your spouse's and any dependents' identification digits) and bank account info if you want your refund directly deposited — that you'll need again this year.

Getting to know the tax you: OK, you have the paperwork, statements, and official tax forms or IRS-approved substitutes.

But don't start working on your taxes just yet. Even if you think you have everything, think again.

Hold on there, tax cowboy. (via Giphy)

You also need to take a look at your life last year and answer a few questions that could have tax implications.

Since every filer's tax situation is unique, some of these might not apply. But you might be surprised, so give them all a look.

Did you have untaxed income? This includes things like contract work or prize winnings. Depending on how much it is, you might have made estimated tax payments to both Uncle Sam and your state tax collector. Dig out (or reconstruct) those estimated tax records.

Do you get tips in connection with your work? You should have been keeping records of the gratuity amounts, especially if you've had to report them each month (as noted in the ol' blog's tax moves column there to the right) to your employer.

Did you get unemployment benefits? The associated Form 1099-G you should get (and discussed in the previously mentioned tax statement post) will detail unemployment benefits paid after you lost your job. But since many folks don't realize that unemployment benefits are taxable, it's worth a second reminder here.

Did you move last year? Sorry, you probably aren't going to be able to count on Uncle Sam to help cover your relocation costs. This above-the-line deduction is still around, but tax reform made the tax break available only to members of the Armed Forces. Still, you need to be sure that all your expected documents are coming to your new address. Also, if you were a resident of or had income from an employer in another state, it could mean added tax filing with those other tax jurisdictions.

Did you work from home? This was common during the height of the coronavirus pandemic, but some employers let their staff continue to work remotely, at least part of the time. No commuting was nice, but if it was in a different locale than your workplace, as noted in the moving query above, it could complicate your taxes. And no, you probably won't be able to claim the home office deduction even if you were more productive working from home than a cubicle.

Did you start your own business? If pandemic job insecurity or general self-reflection prompted you to go into business for yourself, then now you might be able to claim the home office tax break. Make sure you maximize it. Also do your entrepreneurial homework, especially when it comes to business entity choices and, if your endeavor really took off, hiring employees.

Did you close your business? If on the other hand, lingering COVID and skyrocketing inflation did a number on your company, make sure you didn't overlook any of the tax tasks tied to business closures.

Did you retire? You made it! No more 9-to-5. But now you're financing your lifestyle with distributions from your retirement accounts. Depending on the type of plan you have, that money could be taxable. Double check income statements for your workplace retirement and/or IRA withdrawals. 

Did you work while getting Social Security payments? Maybe retirement just isn't for you, for either financial or personal reasons. Many retirees find they need more cash to supplement their Social Security benefits. Others just miss having a coworker community, so they get a post-retirement job. If either case is you, depending on how much money you earn, you could owe tax on some of your Social Security benefits.

Are you still contributing to your retirement plan? Some or all of it might be deductible. Your accounts' annual and tax statements will help you decide. Don't forget about nest egg plans you've set up if you're self-employed, whether as your full-time work or as gig work. These contributions also can be used to reduce your tax bill, so have those statements handy, too. And don't overlook the tax benefits of the Saver's Credit if you qualify.

Did you tie the knot? Exchanging vows with your soulmate, even on the last day of the year, means a difference in your personal and tax life. Among the tax to-do's to take care of after you say "I do" is determining your new married filing status, either jointly or separately.

Did you and your spouse split last year? When your divorce was official could affect your taxes. For divorces and separation agreements finalized in 2019 or later, alimony payments are not deductible for the payer or counted as taxable income to the recipient. However, if your divorce was finalized in 2018 or earlier, you're grandfathered into the old system: alimony is still deductible, again as an above-the-line deduction, to the payer and still counts as income to the ex-spouse getting the payments. Have the paperwork showing the year of your marital split and, as long as they haven't made any modifications to that prior dissolution agreement, the amount paid/received for tax deduction/payment purposes.

Has your family changed? Whether your brood got larger or smaller could affect how you file, as well as some tax breaks. A new baby is another dependent. If that child was adopted, there are tax breaks for that process.

If you answered yes to the previous marital split question, then double check your filing status. Yes, just like getting married, dissolving matrimonial bonds means changes at tax time. You no long will be filing jointly, but you might not be filing as a single taxpayer either if you have children and you are the custodial parent. For tax purposes, you will likely be head of household.

Other family related tax questions include —

• Did you pay for a dependent child's (or another dependent's) care so you could go to work?
• Did you receive any assistance from your employer to pay for education expenses, child care costs or adoption expenses? .
• Did you hire a nanny or other household help? The extra hands are a great help, but the assistance also could mean more tax duties for you, the employer.
• Did you pay a student's tuition or take out a loan to keep yourself or your student in class? You might be able to claim the Lifetime Learning Credit or deduct some of interest paid on the college loan.
• Are you supporting older family members? It could be your children who graduated college but are struggling to find their footing in this economy. Or it could be your aging parents. Depending on how much financial help you provide and the living arrangements, you might qualify for the tax credit for other dependents.

Did your housing situation change without making a move? There are tax considerations if you made improvements to your home, including some energy upgrades or even landscaping changes? The same is true if you sold, refinanced or faced any foreclosure transactions on your personal residence. And if you own a second residence or any other real estate and you rented it out, the length of those rental periods could affect your federal and state tax bills.

Did you have money in a foreign account? Make sure you have those numbers. You need to report it to Uncle Sam on your tax return, and possibly as a separate Reports of Foreign Bank and Financial Accounts, or FBAR, filing.

Did you have any nonresidential debt that was canceled? It generally is counted as taxable income. Recently, however, some students whose college loans were forgiven won't owe federal tax. It's a different situation in many states, though, when it comes to this canceled education debt and tax due.

Did you have health care coverage? Did you buy your medical insurance through the marketplace, either the federal one or your state's marketplace? You might qualify for the Premium Tax Credit. This tax break, which already was great because as a credit it's a dollar-for-dollar reduction in your tax liability, was enhanced in 2022 for some taxpayers a part of the American Rescue Plan Act. This change was extended through 2025 by the Inflation Reduction Act.

Did you serve in the military? If so, did you receive combat pay? It could affect your claiming of the Earned Income Tax Credit (EITC). Your posting as a member of the armed forces also could affect your filing due date.

Do you qualify for the EITC? Speaking of the EITC, this tax credit is overlooked by filers way too often. Some ignore it because they think it's only for families, but eligible single taxpayers also could get some EITC help. The amounts depend on your filing status and income, and are adjusted annually for inflation.

How old are you? I know, it's not a polite question, but it's an unavoidable passage. Aging also could affect your taxes. Many older taxpayers don't realize there are several tax breaks they can claim. They range from larger standard deduction amounts to added contributions to retirement accounts to filing the special Form 1040-SR. And if you just turned 72, you might be facing a required minimum distribution (RMD) for the first time. Or maybe you met your RMD by making a Qualified Charitable Distribution. 

Can you read this post without any trouble? Regardless of your age, visual impairment could net you a larger standard tax deduction.

Taxes truly are personal: I really didn't mean to pry, but the tax fact is that that there's really never too much information to take into account when it comes to filling out your annual return. Or planning for next year's taxes, but that's another post. After Tax Day 2023!

So make sure you take a good look at your life, not just tax forms or statements, when you get ready to file. It could make a difference.

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