Frequently Asked Questions

 

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 01  Do you owe the IRS?

Not everybody gets a refund. Most people do, but definitely, not everyone. First thing before all is to file your tax declaration on time. 

If you owe the IRS, there a several ways to pay it:

  • Personal check or money order

  • Electronic fund transfer. You need to go to https://www.irs.gov/payments/direct-pay or to the Electronic Federal tax Payment System (EFTPS) by using their online access: www.eftps.gov

  • Payment by credit or debit card. The IRS has several payment processors you can select from. All of them charges a flat fee for the use of a debit card and a percentage for the use of a credit card. 

What happens if you don't pay?

  • Penalties and interests are added systematically on your balance until is paid off.

  • Future refunds can be used to offset your tax debt. 

  • The IRS could file a lien against your property/ies (if any)

  • The IRS could seize your bank account  or a portion of your salary with a tax levy

 

 

 

 02  What are the tax benefits of having kids?

Your kids might be worth a bundle at tax season.

With the expansion now ended, the CTC program will revert back to its original design. For 2022 tax purposes (tax returns filed in 2023), credits will return to $2,000 per child, and 17-year-olds are again excluded.

CTC Updates

Prior to 2021, the Child Tax Credit (CTC) was applied to annual tax returns. However, with the passage of ARPA, half of the anticipated credit for 2021 was provided in the form of advance monthly payments. Additional ARPA adjustments to the CTC program included:

  • CTC increase from $2,000 to $3,000 for children from 6 to 16 years old

  • CTC increase from $3,000 to $3,600 for children under 6 years old

  • Temporary $3,000 CTC for 17-year-olds

  • Monthly payments sent automatically to eligible parents, with no additional action required

With the expansion now ended, the CTC program will revert back to its original design. For 2022 tax purposes (tax returns filed in 2023), credits will return to $2,000 per child, and 17-year-olds are again excluded.

Earn income credit

If you are a low income wage earner with a qualifying child, you may qualify for the Earned Income Credit. This credit will be refunded to you even if you owe no tax. 

Adoption credit

Missing out on all these tax savings due to the lack of kids? Adopt one. You could get a tax credit up to $14,300 if you qualify.

 

 

 

 03  How much is a dependent on taxes for 2022?

If you can be claimed as a dependent by another taxpayer, your 2022 standard deduction will be limited to the greater of $1,150 or your earned income plus $400 (but the total can't be more than the basic standard deduction for your filing status)

 

 

 

 04  Tax Consequences of Getting Married

Getting married will -defiantly- make changes in your tax situation, some good, some others not so good. Some of them are listed here below. They also apply to same-sex marriages:

You will file either married joint or married filing separate.

Most married taxpayers usually file married filing joint because it generally gives more benefits and credits.

If your incomes are close, your tax bill should not be much different by being married

If one of you received an earned income credit last year as a single parent, getting married will likely yield the smaller refund.  

Married filing separately could have its drawbacks:

  • Rental property losses are not deductible

  • If you receive social security, more will subject to tax

  • The deduction of an IRA contribution is very limited

  • Credits for dependents in college are not available

  • Credits for childcare are not allowable

  • You don't qualify for earned income credit

Name change

If your name changes with marriage, you should contact your nearest social security office. The IRS uses records from social security to cross check social security numbers with names. You should file the form SS-5 (application for a social security card) to update you r name.

Address change

You should file a 8822 form with the IRS

Circumstance change

If you purchased health insurance through the Health Insurance marketplace, you could have a change in your premium credit. Reporting the change could avoid a tax surprise. 

Withholding change

Your current withhold in your job as a single person is higher than the married rate. The married withholding tables were set in place during a time when families had only one wage earner. Nowadays is more common for both to work. The married tables work great for one wage earner families, but it will be wise to get some help from a professional to to set up the correct withholding if both work. 

 

 

 05  Dependent care options

Unlike the health care FSA, which is indexed to cost-of-living adjustments, the dependent care FSA maximum is set by statute. For 2022, it remains $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately.

Who?

  • The child/dependent must live with the taxpayer for more than 6 months and be one of the following:

  • The taxpayers' child under the age of 13 that can be claimed as  a dependent

  • The taxpayer's disabled child of any age 

  • The taxpayer's disabled spouse

What are the 2 options?

Dependent care expenses can be paid by the taxpayer and/or excluded from income under a pretax dependent care benefit plan at work (DCB)

Health Care FSA Limits Increase for 2022 

Employees can deposit an incremental $100 into their health care FSAs in 2022. And if an employer's plan allows for carrying over unused health care FSA funds, the maximum carryover amount has also risen, up $20 from $550 in 2021, to $570 in 2022.

These new limits also apply to limited-purpose FSAs which are used with HSAs to provide employees with tax-advantaged funds to pay for qualified dental and vision care services. 

While FSA funds not spent within the plan year often times come with a two-and-a-half-month grace period to spend remaining balances, the Consolidated Appropriations Act of 2021 granted employers additional leeway in terms of how they can allow employees to carry over unused balances. These include the ability to carry over unlimited unspent funds from both 2020 and 2021 into 2022. Additional options exist for employers who choose to grant carry-over extensions, but employers cannot blend grace periods and carry-overs.

It's also worth noting that any amount that rolls over into the new plan year does not affect the maximum limit that employees can contribute.

 06  Cryptocurrency, what does the IRS require?

A recent survey conducted by NORC ( a research group at the University of Chicago) estimates that 13% of Americans bought or traded cryptocurrency in the past 12 months. However, many taxpayers are not correctly reporting cryptocurrency on their tax returns. The IRS know this and now requires taxpayers to answer yes/no on their tax return regarding their cryptocurrency activities.  

What are the requirements?

Simply stated, if you earn or sell cryptocurrency you must report it on your tax return. 

What to prepare for your tax report?

For earned cryptocurrency shares:

  • Name of the cryptocurrency received (Bitcoin, Etherium, Litecoin, etc.)

  • Number of shares earned

  • Date shares were earned

  • Price per share (in dollars) at the time the shares were earned

  • Describe how you earned the shares. 

For sold cryptocurrency:

  • Name of the cryptocurrency sold

  • Number of shares sold

  • Date shares were sold

  • Brokerage fees paid for the sale

  • Date share were originally acquired (earned vs. purchase)

  • How much originally paid for the shares?

How to avoid complications

  • Before you start trading, ask the brokerage/exchange if they will provide a 1099-B forms showing your cryptocurrency proceeds and cost basis. 

  • Make fewer transactions and avoid purchasing things with cryptocurrency. Each purchase, no matter how small, is a taxable event. 

  • Explore alternatives to own cryptocurrency directly. For example Exchange Traded Funds (ETFs) that invest in blockchain, the underlying technology behind cryptocurrency. Work with an investment advisor to understand the risks. 

 07  Driving for Uber & Lyft

If you are one of the 1+million rideshare drivers in the USA then you will need to keep track of your income and expenses for tax purposes.

The basics

Based on current regulations Uber and Lyft drivers are independent contractors. That means that you will be issued a 1099-NEC documents rather than a W2s.

The good news is that independent contractors can deduct their non-reimbursed expenses. In contrast W2 employees can not deduct any expenses (on their federal tax return). 

You can choose (in most cases) to use the  standard mileage rate or deduct actual expenses. In most cases, the standard mileage will be better so you may want to save the hassle of keeping track of your  actual expenses. 

Uber and Lyft include mileage totals in their annual summaries. 

Other common deductible expenses

  • Uber and Lyft commissions and fees. 

  • Vehicle inspections specifically required by Uber/Lyft 

  • Parking fees and tolls incurred while actively pursuing paying rides

  • Bottles of water and other conveniences for your riders

 08  Extensions

Taxpayers requesting an extension will have until Monday, Oct. 17, 2022, to file a return. Not everyone has to ask for more time, however. Disaster victims, taxpayers serving in combat zones and those living abroad automatically have longer to file.

An extension of time to file will also automatically process when taxpayers pay all or part of their taxes electronically by this year's original due date of April 18, 2022. Although taxpayers can file up to six months later when they have an extension, taxes are still owed by the original due date.

Advantages of filing an extension

You get more time to file. This is particularly helpful for taxpayers who don't receive important documents by the filing deadline (such as K-1 forms from partnerships, s-corporations, estates and trusts)

If you have a federal balance due you can avoid the late filing penalty (which is 5% of the federal balance due per month up to 25%0

Disadvantages of filing an extension

If you procrastinate too long you may forget important details

Extensions are not necessary if you know that you are getting refunds

If you owe you may have an additional Late Penalty Penalty and/or interest for federal and/or state(s)

Note: The federal Late Payment Penalty is 0.5% on the unpaid balance per month. In addition to penalties 3% interest (annual rate) is charged. Most rates with an income tax filing requirement follow(IRS form  the federal rules in concept (you pay extra if you delay paying tax owed)

How to make a payment with your extension request

Mail a check. along with your extension request: (IRSD form 4868 is used to request an extension). Make sure it's postmarked by April 18th 

Pay online with IRS direct pay https://www.irs.gov/payments/direct-pay.The system will make you confirm your identity, so it's advisable to have a recently filed tax return on hand for easy reference. You will be also asked to determine the type of payment you are submitting and the appropriate tax year. 

What information is required to file the 4868 form extension by mail 

  • Name

  • Address

  • SSN

  • Spouse's SSN