Tax season officially starts Jan. 23, when the Internal Revenue Service will begin accepting and processing 2022 tax year returns. For those who haven't started preparations yet, now is the time to collect documents and understand the changes to tax credits and deductions that may affect their finances.
The IRS expects more than 168 million individual tax returns to be filed, with the majority of those coming before the April 18 tax deadline. People have three extra days to file this year, as April 15 is a Saturday and the Emancipation Day holiday is observed on April 17 in Washington, D.C.
"For tax year 2022, some tax credits that were expanded in 2021 will return to 2019 levels," said Laura Hendrix, an accredited financial counselor and associate professor of personal finance with the University of Arkansas System Division of Agriculture. "This means that some tax filers could receive a smaller refund than last year."
TAX FILING TIPS
Hendrix offers suggestions for preparing to file this year.
Be aware of changes for credits and deductions
For tax year 2022 some tax credits that were expanded in 2021 will return to 2019 levels. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit.
⦁ Those who received $3,600 per dependent in 2021 for the Child Tax Credit will, if eligible, get $2,000 for the 2022 tax year.
⦁ For the Earned Income Tax Credit, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022.
⦁ The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
Unlike 2020 and 2021, there were no new stimulus payments for 2022 so taxpayers should not expect to get an additional payment in their 2023 tax refund.
During covid, taxpayers were able to take up to a $600 charitable donation tax deduction on their tax returns. However, for tax year 2022, taxpayers who don't itemize and who take the standard deduction, won't be able to deduct their charitable contributions.
If you bought a new, qualified plug-in electric vehicle in 2022 or before, you may be eligible for a clean vehicle tax credit.
GET YOUR REFUND FAST
One of the fastest ways to get your refund is to file electronically and use direct deposit. The IRS discourages people submitting paper forms to avoid potential delays. Tax refunds can be deposited in up to three accounts, and Hendrix recommends people deposit at least a part of their refunds into a savings account to build financial security. Use IRS form 8888 for direct deposit.
Filers should also avoid using advance refund loans, which often have high fees.
Save money by filing for free
Several organizations offer free assistance to filers who meet income and age criteria.
"Taking advantage of these services means you can keep more of your refund because you don't have to pay a tax-preparation service," Hendrix said.
Some of these include the following:
VITA (Volunteer Income Tax Assistance):
⦁ Your income is $60,000 or less.
⦁ You are 60 years old or older.
⦁ You have a disability or speak limited English.
⦁ Find VITA Locations https://irs.treasury.gov/freetaxprep/.
AARP Foundation Tax-Aide:
⦁ You are age 50 or older.
⦁ You have low to moderate income.
⦁ Find AARP Tax-Aide locations at https://www.aarp.org/money/taxes/aarp_taxaide/locations.html.
⦁ Your income is $73,000 or less.
IRS Free File:
⦁ If your income is $73,000 or less, you can access guided return preparation assistance.
⦁ If your income is more than $73,000, you can access fillable forms to prepare your own return without assistance.
⦁ Free software and support for military tax filers.
Organize records for tax time
Whether you are doing your own taxes, using a paid tax preparation service, or using one of the free file options, you will need to gather the following information:
⦁ Birth dates and Social Security numbers for yourself, your spouse and dependents on the tax return.
⦁ Wage and earning statements (Form W-2, W-2G, 1099-R,1099-Misc) from all employers.
⦁ Interest and dividend statements from banks (Forms 1099).
⦁ Health Insurance Exemption Certificate, if received.
⦁ A copy of last year's federal and state returns, if available.
⦁ Bank account routing and account numbers for direct.
⦁ Total paid for daycare provider and the daycare provider's tax identifying number such as their Social Security number or business Employer Identification Number.
⦁ Forms 1095-A, B and C, Health Coverage Statements.
⦁ Copies of income transcripts from IRS and state, if applicable.
⦁ If using a free or paid tax preparation service, you will need to show proof of identification, such as a driver's license.
⦁ If married and filing jointly, both you and your spouse will need to sign the tax return.
For more information, visit IRSgov. For extension resources on personal finance, visit uaex.uada.edu/money.
Tracy Courage is with the University of Arkansas System Division of Agriculture.