Time for number-crunching... and nail-biting! The deadline for tax returns is just a few weeks away. Between pulling together paperwork, hoping you don't get audited, and waiting to hear if you owe money -- plus navigating portals and apps -- there's a lot of uncertainty. To relieve a little of the pressure, tax expert Tom Wheelwright -- who wrote 'The Win-Win Wealth Strategy'-- gave us some answers to some of your biggest tax questions.
First...We asked him about this year’s crop of tax refunds
Tom says refunds will be smaller this year because Covid tax benefits have been cut. There were higher child tax credits and dependent care credits — all things we grew accustomed to, that are going away in 2022. The IRS web site says the average tax refund is just over $3,000 this year compared to $3,400 last year. That’s an 11% drop. So if you didn't change your withholding, you're going to end up with a lower tax refund.
People have been hearing a lot of headlines about $80 billion going to the IRS to hire more tax auditors. Has the risk of an audit gone up?
Tom says it has, for sure, and reminds us they have three years to audit returns. He adds that small businesses that are sole proprietors have a five-times higher chance of being audited. The reason — they report on a Schedule C, which leaves a lot of unanswered questions the IRS may want answered. The IRS is less likely to come after you if you change your small business to an ’S-Corp.'
Now... Let's look at new tax laws and incentives that might save you some money.
Right now the government wants green energy. Which means they’re incentivizing electric car credits, as long as your income's not too high. There's a credit for insulated windows, and solar panels are now a 30% credit. It depends on your tax rate but a credit that's 30% means if you put 10K worth of solar panels in, you get 3K back. But Tom says the number one tax break most people miss is the benefit of being in business. Just a side hustle can get you huge tax benefits. You get to to deduct a portion of your home, you get to deduct a portion or all of your car. You can have a small business that you start on your phone or you start in your home and you can still get those same tax benefits.
Finally... what if you can't make that April 18th tax deadline?
If you have any uncertainty, file an extension, then you’ll have until October to file that return. It’s worth doing, because there’s a big penalty if you don't file an extension or your taxes by the deadline. You can file the extension and pay the tax later and pay just a small penalty. Check out IRS.gov to get more info — you might even be able to file your taxes for free through that site.