Jackson Hewitt Tax Service senior vice president Mark Steber explains how Biden’s proposed tax hikes could impact returns on ‘The Claman Countdown.’
Time is running out to file your taxes. The tax deadline is less than a month away. Surprisingly, taxpayers aren’t rushing to prepare their returns.
"There just seems to be a lack of urgency this year," said enrolled agent Kathy Brown, founder of The Kat Co. in Warsaw, Kentucky. "I have never seen such as easygoing, no rush, file an extension attitude as I have seen this year."
Brown and other tax experts attribute this to the lack of federal stimulus money that forced people to file tax returns in previous years if they didn’t get a direct payment.
"There’s no bucket of cash sitting on the table from the federal government," Brown told FOX Business.
IRS data shows that total returns received through March 24 are down 0.8% year-over-year. The number of refunds issued is up 2.6%, but the size of the average refund is smaller – $2,903 compared to $3,263 a year ago – because many COVID-19 relief programs, such as stimulus payments and enhanced child tax credits, expired.
When to file an extension
Experts say it’s better to file an extension if you are not ready, rather than submit an incorrect return that could be audited or amended.
"Extensions are always a good thing," says Nicole Davis, founder of Butler-Davis Tax & Accounting in Conyers, Georgia. "If you’re going to owe, file an extension just to make sure you have all your income documented and reported."
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Davis and other tax professionals remind us that an extension only gives more time to file. There’s no extension to pay. The IRS will charge interest on any unpaid balance after Tax Day. She recommends paying part or all of your estimated tax bill if you owe to minimize penalties and interest on unpaid tax.
Tax Day: April 18
Davis and other tax professionals remind us that an extension only gives more time to file. There’s no extension to pay.
Tax Day traditionally falls on April 15. This year, taxes are due on Tuesday, April 18. That’s because April 15 is a Saturday and Washington, D.C., celebrates Emancipation Day on Monday, April 17.
Enrolled agent Tom O’Saben, director of tax content and government relations at the National Association of Tax Preparers (NATP), says it’s best not to rush because some documents, such as corrected brokerage statements, are still coming in.
The gig economy: No receipts
A DoorDash delivery worker walks his bike in the Mission neighborhood of San Francisco on Feb. 8, 2020. (iStock / iStock)
Gig work is also playing a role in late filing. A survey by freelance platform Upwork found that 39% of Americans, or 60 million people, performed freelance work in 2022, up 3% from the year before.
Many are newly self-employed and unused to having no tax withheld from their pay.
"That means you’re a contractor," says Davis. "You can claim deductions against that income."
The problem is that many new gig workers never saved receipts.
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"They don’t know what they don’t know," says Davis. "We usually try to substantiate [expenses] with other things like a credit card or bank statement or canceled checks."
The Cohan rule: Reconstructing expenses
A statue of American composer, playwright, actor and producer George M. Cohan stands in Times Square as snow falls in Manhattan, Feb. 9, 2017. (Reuters/Andrew Kelly / Reuters Photos)
The NATP's O’Saben tells FOX Business you can also use the "Cohan" rule to reconstruct expenses. The rule is named after Broadway legend George M. Cohan, who was able to "prove" his travel deductions by producing playbills from various parts of the country.
"Assuming nothing was saved, perhaps a taxpayer could go from their appointment schedule and work backward to recreate mileage or check bank or credit card receipts for fuel purchases, etc.," O’Saben told FOX Business.
Tax pros say accounting programs can help track your income and expenses at tax time. (iStock / iStock)
Experts say accounting programs such as FreshBooks can make tax time easier by tracking income and expenses.
FreshBooks user Davis says many small business owners use spreadsheets. However, an accounting program works better because it lets you organize and categorize expenses under tabs like "travel" or "meals" to prepare for tax filing. FreshBooks also has a mobile app to automatically track mileage and save travel history, allowing you to separate deductible business mileage from non-deductible personal mileage.
HOW TO GET YOUR TAX REFUND ASAP THIS 2023 FILING SEASON
Davis says accounting programs can also help gig workers and small businesses work with someone who can understand the numbers.
"Their business generally doesn’t get better because they’re just doing what they know which is not having a high level of bookkeeping skills," Davis told FOX Business.
"If you’re not using accounting software like FreshBooks to track your income and expenses, you’re likely leaving money on the table," FreshBooks founder Levi Cooperman told FOX Business.
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Yellen appears to admit that up to 90% of new IRS audits will be on low-to-middle income taxpayers
U.S. Treasury Secretary Janet Yellen on Friday did not deny a claim made by Rep. Adrian Smith, R-Neb., that 90% of new IRS audits will be on individuals making less than $400,000 annually, contrary to promises from the White House.