Answers To 15 Common Tax Questions
This is the time of year when people’s minds are filled with tax issues – whether they’re searching for free tax help they can trust, trying to squeeze out more valuable deductions, hoping to avoid penalties or audits, eagerly awaiting their refunds or wanting to make sure they aren’t victims of tax scams.
Read on for answers to the most common tax questions that can help you with your return – and beyond.
1. Where Can I Get Free Tax Help?
Several online tax-filing companies partner with the IRS to offer free tax-filing services through its Free File program, available for taxpayers below a certain income level ($79,000 for 2023 returns). If you have a relatively simple tax return, some tax software companies also offer free programs that aren’t based on income.
You can get personalized tax help for free through the IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. The VITA program offers free tax help for people who earn $64,000 or less, and those with disabilities and/or limited English-speaking skills. You can find free tax-filing assistance programs in your area with the IRS Get Free Tax Prep Help Tool.
2. Can I Get Extra Tax Breaks After Dec. 31?
You have until the tax deadline, which for most people is April 15, 2024, to make tax-advantaged contributions to several kinds of accounts for 2023.
You can contribute up to $6,500 to an individual retirement account for 2023 or $7,500 if you were 50 or older in 2023. Your contributions may be tax deductible based on your income and your retirement plan at work. Or, if you’re single and earned less than $153,000 in 2023 (or $228,000 if married filing jointly), you can contribute to a Roth IRA, which isn’t tax deductible but grows tax-free. The income limits rise to $161,000 for singles and $240,000 for married couples for 2024. If you had any self-employed or freelance income, you can make tax-deductible contributions to a simplified employee pension or solo 401(k).
You may be able to make tax-deductible contributions to a health savings account if your 2023 health insurance policy had a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage. (The deductible requirements rise to $1,600 for self-only coverage and $3,200 for family coverage for 2024.) HSA contributions are tax deductible, the money grows tax-deferred and you can take tax-free withdrawals for health care expenses at any time.
3. Can My Kids Contribute To A Roth IRA?
If they earned any income in 2023, they have until April 15, 2024, to contribute to a Roth IRA. It’s a great way to build tax-free savings for the future that they can also tap earlier.
They can withdraw the earnings tax-free after age 59 1/2 and take the contributions at any time for any reason without incurring penalties or taxes, so the money could go toward a house down payment, car purchase, emergency expenses or anything else. They can contribute up to the amount they earned from working for the year (up to $6,500) for 2023. The contribution limit rises to $7,000 for 2024.
4. When Will My Tax Refund Arrive?
When you get your refund depends on when and how you filed your tax return. You’ll get the money fastest – usually within 21 days – if you file electronically and have the refund deposited directly into your bank account.
You can include your bank’s routing number and your account number on your Form 1040 and submit Form 8888 with your tax return for direct deposit into several accounts. It can take much longer if you file a paper return – usually about two months – and if you request a paper check.
You can check on the status of your refund by using the IRS’s Where’s My Refund? Tool by inputting your Social Security number, filing status and exact dollar amount of your expected refund. You can check on your refund status 24 hours after e-filing or four weeks after mailing your return.
5. What Happens If I Can’t Make The Tax Filing Deadline?
Apply for an extension by the filing deadline. If you owe money and miss the deadline, you could get hit with a late-filing penalty each month of up to 5% of the unpaid balance (up to a maximum of 25%) and a monthly penalty of 0.5% of your unpaid taxes for failure to pay on time.
There’s no penalty if you miss the deadline and you don’t owe money, but you’ll have to wait longer to receive your refund. To request an extension for 2023, file Form 4868 by April 15, 2024. You’ll then have until Oct. 15, 2024, to file your 2023 return.
You don’t need to explain to the IRS why you’re asking for the extension but you do need to estimate your tax liability and pay what you think you owe – the extension is just for filing, not for paying. As long as you pay 90% of your final tax liability by the filing deadline you won’t get hit with a late-payment penalty.
6. Can I Take The Home Office Deduction If I Worked At Home This Year?
You can take the deduction only if you’re self-employed. People who work remotely for an employer can’t deduct home office expenses. Self-employed people can deduct their home office expenses if they use part of their home “regularly and exclusively” for business. The home office doesn’t have to be a separate room but it must be an area where you don’t do anything else – so, not your kitchen table.
If you qualify, you can deduct a portion of your rent or mortgage interest, utilities, and homeowners or renters insurance based on the percentage of your home that you use as your home office. Or, you can take the simplified option, calculated at $5 per square foot of your home office (up to 300 square feet) for a maximum deduction of $1,500. For more information, see IRS Publication 587, Business Use of Your Home.
7. Are My Unemployment Benefits Taxable?
Even though some unemployment benefits were temporarily excluded from taxes during COVID, that break lasted only one year and unemployment benefits returned to being fully taxable for tax year 2021 and beyond.
The benefits are taxed as ordinary income (like wages), but are not subject to Social Security and Medicare taxes. Most states tax unemployment benefits, too. You can ask to have taxes withheld from your payments when you apply for benefits or you can file IRS Form W4-V, Voluntary Withholding Request with your state unemployment office. You aren’t required to have taxes withheld, but doing so can help you avoid a surprise at tax time.
8. Should I Itemize Or Take The Standard Deduction?
Most people take the standard deduction, which increased significantly a few years ago. For 2023, the standard deduction for those younger than 65 is $13,850 for single filers, $20,800 for head of household filers and $27,700 for married couples filing jointly. Taxpayers who are 65 or older can claim an extra $1,850 if using the single or head of household filing status. Joint filers who are 65 or older can each get an extra $1,500.
Itemized deductions are based on certain expenses, such as charitable contributions, mortgage interest, state and local taxes (up to $10,000 per year) and medical expenses that are more than 7.5% of your adjusted gross income. If your itemized deductions add up to more than your standard deduction, file Schedule A to report them instead of taking the standard deduction.
9. Can I Get A Tax Deduction For Charitable Contributions?
You can get a tax deduction for charitable contributions only if you itemize your deductions instead of taking the standard deduction. Those who don’t itemize could deduct $300 to $600 in cash contributions in 2020 and 2021, but that break went away in 2022.
If you do itemize, don’t forget to include all of your charitable contributions – not just checks or other money you give to a charity, but also the value of noncash donations, such as furniture or clothing. You can deduct the fair market value of those items, which is what you could get if you sold them based on their age and condition. Keep records documenting how you came up with those figures in your tax files. You can also deduct 14 cents per mile you drive for charitable volunteering, as well as parking fees and tolls. Keep a mileage log with the mileage, date and purpose of the trip.
10. What Are Some Of The Most Frequently Overlooked Tax Breaks?
The saver’s tax credit can be worth up to $1,000 per person and $2,000 per couple. To qualify, you need to contribute to a 401(k), IRA or other retirement savings plan and meet the income limits – for 2023, you must have earned less than $73,000 if married filing jointly ($76,500 for 2024), $54,750 if filing as head of household ($57,375 for 2024) or $36,500 if filing single ($38,250 for 2024).
The child and dependent care tax credit can give you a valuable break if you pay for child care while you work. The maximum credit is 35% of up to $3,000 in child care expenses for one child and up to $6,000 in expenses for two or more (the percentage is lower for higher income levels). To qualify, you must have children under 13 or other qualifying dependents and pay for their care while you and your spouse work or look for work. The cost of day care, preschool, nanny services, before- and after-school care – and even day camp – count toward the credit.
11. What if I Filed My Return and Found Some Deductions I Missed?
You generally have up to three years after the filing deadline to file an amended return if you left something out or made a mistake. File Form 1040-X with the changes and submit any additional forms affected by the change. If you claim additional deductions or credits, you can get an extra refund.
You can check on the status of your amended return and refund using the IRS Where’s My Amended Return? Tool.
12. What Tax Records Do I Need To Keep And What Can I Toss?
It’s a good idea to keep your tax returns (or a digitized copy) forever.
You need to keep records reporting your income, expenses and deductions for at least three years after the filing deadline, which is the length of time the IRS generally has to initiate an audit.
You may want to keep the records for at least six years if you have self-employment income from a variety of sources – that’s how long the IRS typically has to initiate an audit if it finds a substantial error. Note that some states have different time frames for audits.
Keep records of stock and mutual fund purchases you make in a taxable account as long as you own the investment and save records of significant home improvements until you sell your property. In addition, keep records of nondeductible IRA contributions until you withdraw all the money from the account.
13. What Are Some Red Flags That Can Trigger A Tax Audit?
You may hear from the IRS if you didn’t report all of your income. The IRS receives copies of your W-2 and 1099 forms reporting income, and will ask about discrepancies if the numbers on your return don’t match the information.
You may also hear from the IRS if you reported business losses for several years in a row or if your business had unusually large expenses. If you contribute $250 or more to a charity, you need a letter documenting the gift by the time you file your return, and there are additional record-keeping requirements for some larger gifts.
Make sure you’ve included your Social Security number, signed your return and haven’t made any math errors before you file. Keep records documenting your expenses and deductions for at least three years after the filing deadline so you’re prepared to make your case if you do hear from the IRS.
14. Should I File A Tax Return If I’m A College Student?
The answer depends on your income and whether you had taxes withheld from your paychecks.
Students who are single and earned more than the $13,850 standard deduction in 2023 are required to file an income tax return. The $13,850 includes money from earned income (from a job) and unearned income (such as from investments). They must also file a return if their unearned income (such as unemployment compensation, interest and dividends) is greater than $1,250 or their self-employment income is greater than $400.
You may want to file a return even if you aren’t required to if you had income taxes were withheld from your paychecks – in that case, you can file a return and get a refund. Talk with your parents first about whether or not they will be claiming you as a dependent so you can coordinate the information on your returns.
15. How Can I Avoid Tax Scams?
Beware of any calls or emails from someone claiming to be from the IRS. The agency will send you a letter via snail mail if it has questions or issues with your return.
Choose a tax preparer carefully – the information on your income tax return can be a treasure trove for ID thieves. Tax preparers must have an IRS Preparer Tax Identification Number and must sign your return with that number – so, never sign a blank tax return.
Check tax preparers’ credentials using the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. And for more information on protecting yourself from the most recent tax scams, see the IRS Tax Scams/Consumer Alerts page.
Source: U.S. News & World Report
