Are you ready for it? It’s good news from the IRS!
Last week, the agency released a number of adjustments due to the high level of inflation that everyone has been dealing with for the last year. I won’t go deep into the actual numbers and math involved here but did want to spend some time discussing the overall concept and how this really is good news for everyone.
First, the IRS did not actually adjust tax rates but it did shift the income levels at which established rates start. This is one of those things that automatically kicks in for everyone, hurts no one, and is just an overall bonus for all taxpayers. It could feel like an even bigger break, though, for those who were just over a tax-level threshold that they will no longer reach.
Next, the standard deduction was raised for all filing statuses. Again, this is one of those automatics for everyone and a very quick bonus for anyone taking the standard deduction, because hey, there’s a little more money you have made that won’t be taxed.
These are the two biggest headlines of what the IRS released and if you would like to get a little deeper into how these numbers would play out, you can read this article from Accounting Today. There were also quite a few other little bonuses offered up by the agency that you can find in this second article if you wanted more of the list.
Now for a lot of taxpayers, these new numbers may not add up to giant changes when it comes to the final tax bill. But it’s not going to increase anyone’s, so it’s difficult to complain. However, if you are someone who loves staying ahead of the game and running your expected tax numbers (or would like some help doing so), these are going to change your calculations.
Finally, I just want to caution to keep things in perspective even if this is overall good news. If you make more money this year than last year (which many may be seeing themselves doing if you received a bigger cost of living increase in wages also because of inflation) then you could still pay more in taxes this year than last year. Your expected bill is going to be less now than it would have been at the beginning of the month, but that doesn’t mean it’s going away and planning can keep you from being overly shocked come tax filing season.
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Now that the tax extension deadline has passed, it is both necessary and inevitable for us to talk about procrastination again. And look, I'm even doing it immediately this week, only a matter of hours after the deadline has passed just to help prove the point.
Without fail, we hear from people hours before deadlines come up. Some of them are in a complete panic where the weight of the time crunch crashes down all at once because it has become impossible to ignore any longer. It is difficult to offer a lot of solace to those people because, well, it is a self-inflicted wound.
And then there are others who seem really cool with it and just expect that uploading their documents at noon on the day of a deadline is still plenty of time to get things completed. And sure, if you were tackling it all alone, that could be very true. But when you are relying on the services of others, that just puts you at the end of a line that is already longer than it should be (you know, behind those who procrastinated just a little less.)
I know that no matter how much I put up blogs like this, it is never going to result in everyone getting their paperwork together in plenty of time to make this deadline tightrope go away. Frankly, it shouldn't ever really go away, for there will always be people with legitimate reasons (be they personal or the fault of others not coming through) as to why they were waiting to complete the process. But for those who could have avoided the issues, it just makes so much sense to avoid it next go-round.
First off, if you just went through that yourself, imagine how much nicer that time could have been if you did not have to sit through that worry. Instead, you could have had the satisfaction of getting a job done. And if you had actual concerns about what the outcome of your tax return would be, it didn't change by waiting. In fact, if you did owe an amount of money that you were worried about, you only increased the interest you are paying on it by waiting.
And then second, you actually give yourself a chance at a better final outcome on your return if you start the process earlier. Whether it be a possible credit that could be investigated or digging up a few more receipts, that final number can shift a bit toward the positive side for you if the need to just ship it out fast is removed.
So hold onto those ideas if you can. After all, we are now only six months away from the real tax deadline next year.
I think by this point most people have heard some talk about the potential tax implications of having caught Aaron Judge’s American League record-breaking 62nd homer of this past baseball season. Most of this comes in the form of “sure he caught the ball, but did you hear how much he has to pay in taxes?” And of course, this may be a significant amount, but think about this way - $2 million fell out of the sky, he caught it all, and now just has to send a portion of it elsewhere to be allowed to keep the rest.
This is still not that bad a deal. Just mentally reframe it as you caught $1.4 million (or whatever the total ends up being) out of the sky instead. This is the same discussion that comes up around big lottery jackpots, where it is not like you suddenly made out worse because paying taxes is involved.
Of course, there are debates to be had over what the amount of taxes paid (if any) should be in such circumstances, But one probably shouldn’t get TOO upset over only winning a certain amount of millions.
What this does also display, though, is just how much the IRS wants to know about every bit of income you receive. It is easy to understand how your job wages are reported on a W2, with an amount withheld for taxes, and it is even becoming more and more understood how contractors receive 1099 wages that did not have taxes withheld but will need to be paid. However, if you also make a significant amount of money in other ways, that will also be taxed.
And yes, this can include selling valuable stuff that just fell into your lap. If you hold onto this newly prized object, then it may be seen as just an owned object, but once it is sold for potentially millions of dollars, it then becomes income. This works much the same way as gambling winnings (like those aforementioned lottery tickets or what you bring home from a casino). You may have only thrown out a couple dollars, but if it results in a significant return, the IRS then wants their share.
And no matter how upset you are over the situation, no matter how unfair you think it is, your anger will not change the rules. So let this serve as a warning that if you receive a significant amount of money, and tax agencies know about it, you will be paying taxes on it, so plan accordingly.
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From time to time, we must return to talking about scams in this space. And well, now is another of those times.
Last week, the IRS released a notice concerning the increasing prevalence of text scams. This isn’t necessarily surprising as I definitely feel like more random texts of this form have been hitting my phone lately. If anything, it should only be surprising that it has taken scammers this long to get to using text messages in this way. At least personally, I find it much easier to ignore an email than a text message (mostly just because of how many of each are received), so even the nefarious text messages I am more likely to look at than random emails.
But even if the delivery mechanism is new, a lot of the same rules apply. First, if you do not know why you are receiving the message, don’t follow any link that it points you to. These are often phishing scams looking to gain information from you that can then be used to access more sensitive information. This is true whether it is purportedly from the IRS or any financial institution.
Next, know that the IRS will not first contact you about any issue through a text message. The agency also will NEVER contact you via email or text to ask for personal or financial information.
Finally, with texts, take a second when it is received to realize what it is asking. With some banking and credit card transactions, you may receive a text message concerning account access, incorrect PIN numbers, questionable transactions, etc. This can be a powerful tool in combatting fraud but could also be a scam. So if you receive something like that that you are unsure about, it will be more secure to access your bank information how you normally do (not through any texted link) or actually call the institution to determine if the notice is legit and to address it if so.
Since last week, Hurricane Ian ripped through the southeastern part of the country, and following it, the IRS offered some tax relief for people in those areas, giving them an extension on how long they have to file certain tax returns or make some payments.
Overall, this often happens for areas who go through a natural disaster. And sure, for those who are seriously affected by such things, this is only a slight balm, but it is something. This is a reminder for all those affected (or ever affected in the future) to check to see if this type of leeway is being offered and hopefully take one more thing off your plate.
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