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3 Keys to Know Before Filing Your Taxes

We are almost 6 weeks away from tax filing season, and IRS improvements are well underway which include things like staffing and tech upgrades as the agency continues to deploy its $80 million in funding from the Inflation Reduction Act. Processing may go a lot smoother this year however, there are some things to keep in mind before filing your returns.

Refunds Will Be Lower This Year

Early filings for the current tax year have slowed however, Mark Jaeger, vice president of tax operations at TaxAct believes the change in refunds is the reason why early returns have tapered off. “What we’re seeing is refunds are going down and more people have a balance due,” he said. A year ago, the average return per taxpayer was $3,473, compared to this year’s average as of February 24th, which is $3,079 – about an 11% fall, according to the IRS. Of course, that average may change with millions more returns still to be filed.

Usually, taxpayers will receive a federal refund when they overpay the year’s taxes or withhold more than what they owe. The Agency did warn the public in January to expect a lower refund than in previous years due to expiring pandemic relief that delivered tax breaks in 2021. “Now you’re seeing this drop-off because you have people who are either less sure because they may be getting a smaller refund,” Jaeger said. “Or they owe the IRS money … nobody really wants to pay that balance due until April 18.”

Avoid Delays

One of the most proficient ways to avoid getting your refund delayed is by filing a complete accurate return, according to the IRS. If your refund is error-free, the agency will typically issue your refund within 21 days. When filing your tax return, experts say it’s crucial to have all your forms ready. Every year, employers and financial institutions send tax forms to taxpayers and the IRS. “If anything is furnished on a tax statement, the IRS knows it’s coming,” said Nicole DeRosa, senior tax manager at accounting firm Wiss, noting the missing information may trigger a tax notice from the agency, along with possible penalties and interest.

Delays for 1099-K reporting

Even though business income has always been taxable, individuals and the IRS probably won’t receive Form 1099-K until at least 200 transactions totaling at least $20,000 are made in 2022.

The IRS recommends contacting the issuer immediately if you receive the form by mistake. To avoid a mismatch at the agency, tax professionals recommend including the form’s details on your return. “If you did get one, you want to report it,” Jaeger said.

For 2022, the threshold for 1099-K reporting was set to drop to $600 for even single transactions. As a result, many more filers would have received Form 1099-K this season if the IRS hadn’t delayed the reporting change until 2023.

Wrap Up

With tax day fast approaching it is important to make sure you take all necessary precautions to ensure the IRS can process your documents to get you your refund as fast as possible. At DSJ we have no shortage of tax professionals that are just a phone call away ready to help you this tax season.

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