The 2022 tax filing deadline is just 3 weeks away. Here are 3 last-minute tax tips to consider.
1. Some reasons to file, even if not required. Not everyone needs to file a federal tax return, but there are reasons to do so, especially this year. In general, you need to file only if your adjusted gross income exceeds the standard deduction for which you would qualify — $12,550 for singles under 65 and $25,100 for married couples, for example.
Yet a growing list of “refundable” tax credits are available even to people who don’t owe any taxes, including some that might end after the 2021 tax year. These credits “have the potential to result in a net payment to the taxpayer,” noted Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting.
Here are some of the key refundable credits and other reasons to file:
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The ability to recover excess withholding. If you had more money withheld from a job or other income source than your tax bill for the year, the only way to get the money back is by filing a return, Luscombe said.
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The Earned Income Tax Credit. This benefit is designed to “reward taxpayers for working,” said Luscombe, who noted that the credit was significantly expanded for 2021, especially for people who don’t have children.
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The Child Tax Credit. This one was partially refundable for years but was enhanced in 2021 while also becoming fully refundable. However, if you received more advanced credit payments last year than you were entitled to claim, you might need to repay some or all of the excess.
Other credits that are at least partially refundable for 2021 include the American Opportunity Tax Credit (for education expenses), the Child and Dependent Care Credit, the Premium Tax Credit (certain health insurance costs) and the Health Coverage Tax Credit.
2. IRAs are a last-minute tax break, for some. Contributing to a traditional IRA is itself one of the few planning tips still available for individuals seeking to cut their tax liabilities for 2021.
“Eligible individuals who did not save for retirement last year can contribute to an IRA until April 18, 2022, for tax year 2021 — and may be able to claim the Saver’s Credit,” Collinson said.
This filing season, more people might fall under the income limits for traditional or Roth IRAs if they lost their jobs in 2021 or voluntarily took some time off. Eligibility — and the amount you can deduct in traditional IRAs — depends largely on your income and whether you or your spouse are covered by workplace retirement programs.
Details are available at irs.gov.
Relatively few people contribute new money to any types of IRAs. Confusion over eligibility is a major impediment, and many workers prefer to direct their dollars to workplace 401(k) and other plans that offer employer matching funds. IRA balances are growing, but this largely reflects transfers or rollovers from 401(k) and similar programs.
3. Get ready for tighter reporting.
Here’s a cumbersome new tax rule that will affect a lot of people going forward: Money you receive on various payment-processing apps now will be reported to the IRS, and you will receive a Form 1099-K, if your gross proceeds exceed $600 annually. The rule doesn't impose new taxes but is designed to tighten income reporting.
“This is going after self-employed people, gig workers and those with side hustles,” said Marc Lamber, an attorney at Fennemore Craig in Phoenix. Through increased voluntary tax compliance and greater awareness of existing rules, the IRS expects to bring in another $1 billion in revenue next year, he said.
One caveat is that you could receive a 1099-K next year for nontaxable personal transactions such as gifts or if you received money from a travel buddy for his or her share of your cruise cabin, or if you took a payment from friends for a joint dinner.
As a general rule, transactions between family members and friends aren't taxable, but you still might receive a 1099-K that may need correcting, Lamber said. That’s why it’s important to start keeping good records now rather than waiting until next year's filing season.
Then again, some taxes could apply on transactions that you might view as personal, such as if you sold a rare coin, piece of art or even a used car at a profit.
