Haven’t filed your taxes yet? Here are key things to know.
The tax season clock is ticking down, with six weeks remaining before the April 18 federal deadline and millions of taxpayers who have yet to send in their annual returns to the IRS. The early returns filed so far with the IRS are providing some insight into what to expect this year, from processing time to the size of your refund.
This year, the IRS expects about 168 million households or individuals to file taxes, according to the most recent data available. That means about 7 in 10 taxpayers will flood the IRS with their returns in the next several weeks.
For those who have yet to file, here’s what to know, based on IRS data and advice from tax experts.
Your refund is likely to be 10% smaller
Tax experts and even the IRS had warned prior to tax season that refunds were likely to be smaller this year, due to the expiration of pandemic benefits like stimulus checks and the expanded Child Tax Credit.
Now that the IRS has several weeks of data under its belt — this year’s tax filing kicked off on January 23 — the receipts are in: Tax refunds are down 10% on average this year.
The typical tax refund is about $3,170 so far in 2023, down from $3,529 at the same time last year, according to IRS data.
Faster returns this year
The pandemic-related delays during the past three tax seasons caused millions of tax returns to get stuck in IRS limbo, delaying refunds and creating financial stress for many taxpayers.
But the IRS is processing returns faster this year, according to its own data and tax experts.
The tax agency has received about 46 million tax returns through February 24, the most recent data available.an increase of 1.3% from last year, and has processed 45.7 million of them — a boost of 4.3% from a year earlier. The IRS has invested in hiring new agents and customer service reps, which is easing some of the problems experienced in prior years, experts say.
“The response time has been better, customer service time has been better,” said Keith Hall, a CPA and CEO of the National Association for the Self-Employed, an organization for small business owners. “So far, the IRS has dramatically improved the service side of what they do.”
Don’t overlook credits and deductions
The pandemic benefits that helped millions of taxpayers, from stimulus checks to the expanded Child Tax Credit, are largely expired, but there are still plenty of deductions and other credits that people shouldn’t overlook.
For instance, the Child Tax Credit still exists, albeit in its pre-pandemic form of up to $2,000 per child under the age of 17.
And eligible parents with older children in college can also claim education-related tax benefitsthe American Opportunity Tax Credit and the Lifetime Learning Credit, although you can only claim one per child. The first is worth up to $2,500 and the second is up to $2,000.
The Earned Income Tax Credit, meanwhile, can help low- or middle-income taxpayers receive as much as $6,935 in tax credits, depending on eligibility.
And people who have side gigs or freelance income shouldn’t neglect claiming deductions for their business-related expenses, noted Hall of the National Association for the Self-Employed.
“Almost all the deductions you have come from your checkbook,” such as payments for a new computer, office furniture and other purchases, Hall noted. “The ones that are easy to miss are ones that don’t show up on your checkbook,” such as using your vehicle for your business.
The home office deduction for self-employed individuals is another valuable tax benefit, Hall noted.
Extensions give you more time to file, not pay
Lastly, if you know you won’t be ready to file by the federal deadline of April 18 this year, you can easily get an extension from the IRSwhich will provide you with another 6 months to get your tax forms prepared.
But, Hall pointed out, this isn’t an extension to pay what you owe the IRS. If you know you will be in the red with the tax agency, you’ll still have to make your payment to Uncle Sam by April 18, or potentially face fines and fees.
“If you think you are going to owe money, then do a quick estimate and send in a payment with your extension, because then you have an opportunity to avoid penalties,” he noted.