The April 18 deadline for filing federal income taxes is fast approaching. For those who haven’t filed yet, Jennifer Reynolds, MS, CPA, with UT Tyler’s Business School has tips, suggestions and warnings about getting your return filed with the IRS on time.
Mike Landess: For UT Tyler Radio, I’m Mike Landess. The deadline for filing your taxes is coming up, and while many of you have already filed, there’s also many who have not - you know who you are. You haven’t gotten as far along as you need or want to for a variety of reasons. Joining us is UT Tyler’s Jennifer Reynolds, who’s a senior lecturer for accounting and business.
So here we are. We’ve got tax day looming. And what are the most common issues for those who haven’t filed yet? What kinds of questions or problems do you hear about?
Jennifer Reynolds: I think probably one of the most common that I get around this time is I don’t have the money to pay my taxes. So should I wait to file my return until I do have the money or do I go ahead and file now? And that’s probably the most common this far along in the game.
Mike Landess: That they’ve actually taken all of the time to put the taxes together and realize that they owe.
Jennifer Reynolds: Well, a lot of times it’s self-employed individuals, a real estate agent, someone who does home construction. And they just got to the end of the year, and there’s not a lot of money in their bank account. So, they haven’t necessarily done their return, but they know they’re going to owe and are afraid that they’re not going to have enough to pay in. So that’s the question that is usually the question.
Mike Landess: The answer?
Jennifer Reynolds: So, the answer is always go ahead and file the return. There is a much larger penalty for not filing on time than there is for not paying on time. The penalty for not filing on time is 5% of what you owe, and the penalty for not paying is 0.5%. So the answer is just unequivocally, always file your return and then deal with paying when you can.
Mike Landess: Let’s talk about some of the key differences for the average taxpayer in regard to filing. What’s changed from 2021 to 2022? That’s significant.
Jennifer Reynolds: Ha ha, everything. Oh, OK. Absolutely everything.
Mike Landess: Well, then start with Alpha and let’s end up with Omega.
Jennifer Reynolds: Well, COVID just brought about so many changes as the government was scrambling to try and help individuals in need. And so this year, actually what we’re seeing is that refunds are a lot smaller because some of those credits and different incentives have been taken away now. And so that’s been a bit of a surprise. On average the payments are about 11 to 20% less than they were last year, and a lot of people were expecting that, so they used that money to make a down payment on a car or to get caught up on credit card bills. So that’s one of the big ones.
Mike Landess: Any other specifics? So for instance, I have filed an itemized return for maybe 30, 45 years, and this year, the standard deduction took care of everything for me.
Jennifer Reynolds: So that was a big change actually in 2018. There was a new law passed called TCJA of 2017 that took place starting in 2018. And they doubled the standard deduction for everyone. So the number of people who itemized has dwindled significantly, which makes filing your return easier. You don’t have to keep track of a lot of that information. That is set to end in 2025. So we’ll see if Congress decides to extend that. But we may see that jump back up to where we are having to itemize again. But yeah, right now I think less than 20% of the population has to itemize. So that is one of the very few things they’ve done to make filing taxes easier.
Mike Landess: Now, in the age of the internet, there are a variety of companies that offer online DIY do-it-yourself tax programs. How effective are those, and do you have any caveats to offer on the use of them?
Jennifer Reynolds: Yeah, that’s actually a really common question I get. And the answer I tell my tax class all the time, the answer is always, it depends. If you’re ever looking at multiple choice, find the one that says it depends. Yes, I think they’re fine in a lot of situations. If you have one job and you get a W-2, there is no reason you can’t do that. And in fact, the IRS free program where you can use name brand software that a lot of people don’t know about. There’s no reason to pay for TurboTax, H&R Block software. You can go use it for free on the IRS website. You know, of course there’s some stipulations there, but a lot of people can do that. I think it’s when you own a business or you buy a house for the first time, or you sell some property for the first time, that it becomes really wise to seek some professional help.
Mike Landess: Now in the age of the internet, perhaps one of the biggest brick and mortar operations for the common man or woman is something like an H&R Block or the equivalent. Is that just an easy way out or do taxpayers still need to do their homework before going in?
Jennifer Reynolds: They always need to do their homework. I always equate it to, you wouldn’t just go to the first person on the street to treat your medical condition. So there are different people with expertises in all kinds of things in law, in medicine, and there are in accounting as well. If you have someone who is a licensed CPA, they have had extensive education, and they’re required to keep up with that education. They have to do 40 hours of continuing education every year. So when these tax laws are changing so rapidly, like they have been the last two years, you know, that that person has kept up with it. So that’s one way, you know, you’re not necessarily looking at the brand of the office. Are you a CPA? Do you have this education, and are you keeping up with it?
Mike Landess: I think that the difference between, let’s say, a TurboTax as opposed to walking into an H&R Block office is that the H&R Block office will offer a guarantee of the return, a guarantee that they provided the very best expertise that’s available on that return. And if there’s a challenge, they’ll stand by you. They would stand in and help you out with that.
Jennifer Reynolds: You know, actually some online softwares do provide that. You can pay an extra fee. I think even TurboTax offers something like that. You do have to pay an extra fee. But where they’ll help you, and that’s one case that I do tell people even if you are comfortable doing your own return, if you get a notice from the IRS, they question something, they want to audit you, that is time to go seek professional help. You don’t really want to have to deal with that by yourself after the age of COVID.
Mike Landess: How often are people being audited these days? It doesn’t sound like it’s something that is quite as common as it might have been 10 or 15 years ago.
Jennifer Reynolds: Yeah, that may be changing. It has dwindled to the lowest percentage in history, so it’s less than 2% currently that’s being audited. However the metrics to figure out who to audit have certainly gotten a lot better. We can use all kinds of data analytics and computers now, right, to figure out who to audit. It’s not truly a blind random. Pick a number out of a bucket and audit that person. They’re looking at all sorts of metrics to figure out, oh, this person is more likely because of the information we’re looking at to get audited. And then recently, the IRS has been allotted a lot more money by Congress to hire and hopefully be able to dig in a little more.
Mike Landess: Any final thoughts on filing one’s 2022 taxes? Any thoughts to, to share about?
Jennifer Reynolds: Well, probably the last thing that I think a lot of people are not aware of that’s really important, is even if you think you don’t owe any taxes, if you worked, you should go file every single year. Even hundreds of millions of dollars go unclaimed by people because they could get an earned income credit or a child tax credit, and they don’t file because they think, well, I didn’t owe, I only made $10,000 last year. And you only have three years to claim that. So you need to get your return filed. And you might be surprised, you might be due a large refund that you weren’t aware of.
Mike Landess: Don’t leave that money on the table.
Jennifer Reynolds: Exactly.
Mike Landess: Our guest has been UT Tyler’s Jennifer Reynolds, senior lecturer for Accounting and Business. To hear this conversation again or to share it, go to KVUT.org. I’m Mike Landess for UT Tyler Radio.
(Transcripts are automatically generated and may contain phonetic spellings and other spelling and punctuation errors. Grammar errors contained in the original recording are not typically corrected.)