Three-fourths of filers get a tax refund every year, with the average check weighing in at $2,972* so far this tax season. Here are some ideas to put that money to good use:

1. Pay off debt. Part (or all!) of your refund could be used to reduce or eliminate debt. With interest on credit cards skyrocketing due to inflation, this is a great place to start. Or an extra payment on your mortgage or vehicle could put more money in your pocket over the long haul.
2. Save for retirement. Saving for retirement works like debt, just in reverse. The sooner you set aside money for retirement, the more time you give the power of compound interest to work for you. Consider depositing some of your refund check into a traditional or Roth IRA. You can contribute a total of $6,500 in 2023, plus an extra $1,000 if you are at least 50 years old.
3. Save for a home. Home ownership can be a source of wealth and stability for many people. If you dream of owning a home, consider adding your refund to a down payment fund. Or if you own a home, start a maintenance fund you can use to replace an aging roof, furnace, or air conditioner.
4. Invest in yourself. Sometimes the best investment isn’t financial, it’s personal. A course of study or conference that improves your skills or knowledge could be the best use of your money.
5. Give to charity. Donating your refund to a charity helps others and gives you a deduction for your next tax return if you itemize.
6. Beware of fraud! Scammers are using new tactics every year to separate people from their tax refunds. Remember, real IRS agents will never call over the phone and demand immediate payment for any reason.

Finally, consider saving some of your refund to have a little fun. If you use some of the ideas mentioned here, you can feel comfortable you are taking a balanced approach with your refund.

*Source: IRS 2023 tax filing season statistics, cumulative through March 10, 2023.

Both your individual tax return AND first quarter estimated tax payment are due by Tuesday, April 18th. Here is what you need to know.

First quarter due date: Tuesday, April 18, 2023

The estimated tax payment rule

You are required to withhold or prepay throughout the 2023 tax year at least 90 percent of your 2023 total tax bill, or 100 percent of your 2022 federal tax bill.* A quick look at your 2022 tax return and a projection of your 2023 tax obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks.

Things to consider

• Underpayment penalty. If you do not have proper tax withholdings throughout the year, you could be subject to an underpayment penalty. A quick payment at the end of the year may not be enough to avoid an underpayment penalty.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 wage withholdings to make up the difference.
• Self-employed. In addition to paying income taxes, self-employed workers must also pay Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.
• Use your refund? An alternative option to pay your 2023 first quarter estimated tax is to apply some or all of your 2022 tax refund.
• Pay more in the first quarter. By paying a little more than necessary in the first quarter, you can be in a position to adjust future estimated tax payments downward later this year if your 2023 tax obligation trends lower than you originally thought.
• Not sure if you need to make a quarterly payment? Take a quick look at your 2022 tax return to see the amount of tax you paid last year. Divide this amount by the number of paychecks you receive each year and compare to your most recent paycheck. Is enough being withheld from each paycheck? Talk to your employer if you decide you need to adjust your withholdings to cover your 2023 tax bill.

*If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2022 tax obligation to avoid an underpayment penalty on your 2023 tax return.

In an effort to keep taxpayers from transferring wealth from one generation to the next tax-free, there are specific limits to the amount of gifts one may give to any one person each year. Amounts in excess of this limit are subject to filing an annual gift tax form. For most of us, this is not something we need to worry about, but if handled incorrectly it can create quite a surprise when the tax bill is due.

The Gift Giving Rule

You may give up to $17,000 (up $1,000) to any individual (donee) within the calendar year 2023 and avoid any gift tax filing requirements. If married you and your spouse may transfer up to $34,000 per donee. If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $175,000 for 2023.

Gift Tax Reporting

Amounts given in excess of this annual amount are subject to potential gift tax reporting. The amount of tax is currently unified with estate taxes with a maximum rate of 40%. The donor of the gift is responsible for paying any associated tax. When you exceed the annual gift giving amount, this triggers the need to file a gift tax form with your individual tax return. The excess gift amounts are netted against your lifetime unified credit. If your lifetime gifts do not exceed the credit you may not have additional taxes owed. Here are some instances when a gift tax problem may occur and ways to manage the problem:

• Gifts for college. Grandparents like to help out with the tremendous expense of funding a college degree and amounts donated can quickly surpass the annual gift threshold. To avoid the gift tax problem consider making payments directly to the college as this form of payment can be excluded from the annual gift giving limit AS LONG AS the funds are not used to pay for books, room or board on behalf of the donee.
• Be careful with 529 plan funding. If your children are anticipating going to college, many consider creating a 529 college savings plan. You may then fund the savings plan (or have someone else fund it) on behalf of your child. However, remember the deposits into 529 accounts are considered a gift and are subject to the annual gift giving limits.
• Gifts to cover medical expenses. It is very easy to mount up a large medical bill. While you may want to step in and help out by giving money to the individual with the medical bills, you may be creating a gift tax obligation. Better: make payments directly to health care providers for medical services on behalf of the patient to avoid gift tax exposure.
• Gifts to help make a down payment. It is becoming more common to have family members help their kids with the down payment on a first home. This can be tricky. Lenders will look for recent deposits in bank accounts and ask the prospective buyers to substantiate the source of funds. Providing the funds as a loan may disqualify the couple for taking on the mortgage. Even worse, if the purchasing couple claims the funds are a gift, this action may create a gift tax obligation to the person providing the funds. Care must be taken to provide the correct audit trail to prove the gift does not exceed the annual amounts.
• Gift of real estate. If you give property to a relative for little or nothing in return, this generates the need to file a gift tax form as well. Recent IRS studies suggest over 50% of taxpayers fail to declare property transfers as gifts.

Other things to consider

• You may provide gifts to or receive gifts from ANYONE. There are no limits or restrictions on who you may give a gift to or who may provide a gift to you. Creative gift giving can be a useful tool to help someone in need without creating a tax obligation.
• Do not give a lump sum gift for the maximum amount. If you provide a gift for the maximum allowable to an individual, you may not provide any other gifts to this person during the year or the event would be deemed excess gift giving and require filing a gift tax form. For example, a grandmother gives $17,000 to her granddaughter for college. She also pays for a vacation trip to send the family to Disney World and provides a wonderful birthday gift. Technically, the additional gifts are in excess of the annual limit and would present a gift tax event.

The IRS is paying attention to the massive non-compliance in the timely filing of the annual gift tax form. So much so, that it is actively researching property transfers in key states to ensure the gift tax filing is taking place. So identifying when to file the gift tax form is your most important take away from this tax tip.

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If you’ve ever had to care for a sick, elderly or disabled person, you know it can be difficult financially as well as emotionally. A recent study found that many caregivers are forced to make financial sacrifices, including delaying retirement, in order to help their loved ones.

Luckily, there are three key federal income tax breaks available to help lighten the financial burden on caregivers. Here are some tips to help take advantage of them:

Tip #1: Use the “family” credit

This is a $500 tax credit that you can claim for each dependent other than children under age 17. This credit is generally for relatives and others who are members of your household and for whom you provide more than half of their support. The credit begins to phase out at $400,000 for married joint filers and $200,000 for individual filers.

Tip #2: Use the medical expense deduction

Caregiving often comes with medical expenses. The good news is that you can claim a deduction for the medical expenses you pay for your dependents.

The threshold for claiming the medical expense deduction is 7.5 percent for the 2022 and 2023 tax years, meaning that you can deduct any medical expenses higher than 7.5 percent of your adjusted gross income.

Bonus tip: You can still claim the deduction for medical expenses for a relative even if that person wouldn’t otherwise be classified as a dependent (such as when they don’t live in your household), as long as you provide more than 50 percent of their support. In the case where multiple people together provide more than 50 percent of the support for a relative, you can collectively decide who gets to take the deduction as part of a multiple support agreement. This is useful when, for example, siblings share the cost of caring for elderly parents.

Tip #3: Use the Child and Dependent Care Credit

If you are working while acting as a caregiver for a dependent, you may be able to use the Child and Dependent Care Credit to offset part of the cost of their care. The dependent must be physically or mentally incapable of caring for themselves and live in the same home as you for more than half the year. Depending on your income, the credit can be applied against 20% to 35% of qualified expenses, up to a total maximum credit of between $600 and $1,050 for one dependent.

Bonus tip: Both you and your spouse must be working during the year to claim this credit. If your employer provided any dependent support as part of a benefits package, the amount of the credit is reduced by that amount.

If you have any questions about the tax benefits available to you, don’t hesitate to get in touch.

More than 90% of individual tax returns are now filed electronically, and usually the process goes smoothly. When an e-filed tax return is rejected, however, e-filing can become more complicated.

Common causes for rejected tax returns

Simple filing errors. Most rejections are caused by things such as misspellings, typos on Social Security numbers, or missing forms. When an e-filed tax return is rejected, the IRS e-filing system sends back rejection codes. These codes are specific to lines on the tax return and descriptions of the problem are readily available. Most of these errors can be easily corrected.

Dependent errors. This error occurs when someone else has claimed a dependent on a previously filed tax return. This often occurs with divorced and unmarried couples who each claim the same child on their tax return. The IRS does not take sides in this situation, they simply accept the earlier-filed return and reject any subsequent returns.

Identity fraud. Someone else has already filed a tax return using your Social Security number.

What to do

Most errors are simple and easily corrected, which paves the way for resubmitting your tax return for e-filing without much additional delay. However there are two instances that require your immediate attention. When either of these occur, you may need to file your tax return via physical mail and work to correct the error for future tax filings:

1.) Dependent errors. A dependent can only be claimed on one tax return. If a dependent is already claimed on another individual’s tax return you will need to provide proof that the dependent belongs on your return. If this happens, contact the other party who claimed your dependent and ask them to amend their return. Let them know that you’re filing your tax return correctly claiming the dependent. Your filing will target both tax returns for a potential IRS audit. This audit risk often is enough motivation to correct the problem.

2.) Identity Fraud. Criminals using stolen information submit tax returns electronically in an effort to steal your tax withholdings. Fraudulently claimed refunds are then automatically deposited into thieves’ bank accounts. Unfortunately, you may discover the theft when your e-filed tax return is rejected. If this happens to you:

• File a paper tax return.
• Include Form 14039: Identity Theft Affidavit with your tax return.
• Confirm your identity using the IRS Identity Verification Service or by calling the IRS.
• Mail your tax return using Certified Mail with Return Receipt Requested so you are certain of timely delivery.
• Immediately take steps to protect your financial information. The following link will take you to the Federal Trade Commission’s identity theft area for recommended steps to protect yourself: FTC Identity Theft Assistance

While solving the cause for a rejected e-filed tax return can be a headache, the sooner the problem is addressed, the sooner your refund can be received.

In a tax court decision, a judge ruled that a joint tax return not signed by both spouses is not a validly filed tax return.* This seems like a simple ruling about the signature line on a 1040 tax form. The true reason for the ruling; to keep the statute of limitations open to give the IRS the authority to audit this couple’s prior year tax returns. The lesson here is not only found on the signature line of the tax return, but on closing out past tax returns from the possibility of audit.

The rules

Three (3) year rule. The IRS can audit a tax return for up to three years after the tax return is filed or the original filing due date, whichever is later.

Six (6) year rule. The three year audit window doubles if you understate your income by 25% or more. This includes understating the taxable value of property transferred to you.

The forever rule. There is no time limit if you fail to file a tax return, there is fraudulent activity, or if certain unreported foreign assets are involved.

State rules vary. Each state has its own statute of limitations. Many states add six months to one year to the federal window to allow the state time to react to any federal tax changes due to an audit or amended tax return.

Amended returns. If you amend your federal tax return, the IRS generally has sixty days to review the revision. This may add time to the audit window, but only if the amended tax return is filed near the end of the audit window.

Some tips

Keep the time as short as possible. Try to file your tax return on or before the initial filing deadline. For most of us, this is April 15th. Keep records that document the timing of your filing either by using certified mail or keeping copies of e-file confirmations. But also be aware there are exceptions to this rule. Late law changes often create a need to file an extension, so it is best to discuss your situation.

Start the clock. Remember, until you file your tax return the audit clock never starts. This is the problem our couple had with their unsigned tax return. Without both signatures, the jointly filed tax return was not deemed to have been filed. So the audit time-frame did not start. This left the taxpayers with a very large (and expensive) available audit window.

Understand the permission to extend. On occasion, the IRS may ask you for permission to extend the audit period. They will do this to buy time to finish an audit. If you refuse, the audit window is closed, but the IRS may present you with a tax bill based upon incomplete information. Should this request be delivered to you, ask for assistance before agreeing to an extension.

Know your state’s rules. States have different statute of limitation rules. For instance, some states hold their audit periods open indefinitely if you file an amended federal tax return, but fail to file an amended state tax return.

While many look at the April filing deadline with dread, remember each deadline also closes the ability to audit a timely filed prior year tax return.

* Reifler v. Commissioner, T.C. Memo. 2015-199

If you have children younger than 19 years old (or 24 if a full-time student), you should coordinate the filing of their taxes with yours. HOW they file, though, is a matter of tax law.

The problem

Your child is away for college. You try to file your family tax return on April 14th after finally receiving all the required documentation. Unfortunately, your e-filed tax return is rejected because your college student filed their own tax return and received a nice refund. Now you have a mess on your hands. You must file an extension, file an amended tax return for your child, return a refund, and potentially paper file your tax return.

A matter of law

The dependency rules and kiddie tax laws are clear and must be followed. If you have a dependent child as determined by the tax code, you will need to conduct the tax calculations to determine what is taxed at your child’s tax rate and what will be taxed at your higher tax rate. The same is true for which tax return receives what level of standard deductions. This requires coordination of your tax filings with that of your dependent children.

Suggestions

• Remind your independent-minded kids to hold off filing their tax return until consulting with you.
• Claiming oneself as a dependent is not a choice, it is a matter of law. Remind your child there are rules that must be followed before making this tax decision.
• Plan for a dependency shift. Sometimes arranging for a shift in dependent from a parent to a student makes financial sense. If you think this might be true, conduct a tax planning exercise prior to making the change.

Consider using the tax filing process to introduce your young adult to the benefits of tax planning. You never know, it could save you money as well as the hassle of undoing an improperly filed tax return.

Your mailbox has started filling up with tax forms over the last several weeks and there are likely more to come. Getting your forms organized makes your tax filing easier for everyone involved. Here are some tips on how to handle all the forms you get and to head off any potential problems.

Collect them all

Check last year’s tax records, and make a list of the forms you received. Add any new accounts, employers or vendors and check the forms off as you get them.

Gathering all your forms is important because the IRS gets copies of each form sent to them as well. Missing one can trigger an IRS correspondence audit, creating extra work and possibly delaying your refund.

Check for digital forms

More employers, banks and others are making their tax forms available to you electronically, so you may not get a paper form in the mail. Be sure to check your inbox for any missing forms before you file, and don’t forget to check your junk or spam email folders as well, just in case any tax information accidentally ends up there.

Fix errors

Double check to see if there are any errors on the forms you receive. If there are, contact the issuer via phone and in writing to get the problem fixed. If you can’t get a corrected form, still report everything on your forms to the IRS, but add a correction explaining the error when you file your return. That way you can still file without waiting for the issuer to send you a corrected form.

Commonly overlooked forms

While getting all your W-2 and 1099 forms is important, there are three forms worthy of special attention before you file:

• 1095 – Proof of health insurance, required under the Affordable Care Act (ACA). Most taxpayers will no longer receive this form, unless you get your insurance through the Healthcare Marketplace. If you do, you may be entitled to a special premium tax credit. You will need this form to support this deduction.
• 1098-T – Confirmation of tuition and fees paid to qualified educational institutions. If you’re taking an education deduction, you’ll need one of these forms from your accredited school.
• 1099-K – Confirmation of payments you receive from a third party service like Ticketmaster, SeatGeek, Venmo or other digital/credit card payment systems. New rules required many more to receive this form, but the IRS recently delayed the expanded reporting requirement in late December 2022. Too late for many to stop sending out their forms…so look for them AND retain them if you get any of these forms.

As you watch for your forms to arrive, remember to reach out to schedule your tax filing appointment. An early appointment will help ensure you get all questions answered ahead of the April filing deadline.

The 2022 tax filing season officially begins when the IRS starts accepting tax returns in late January and early February. There are many reasons to consider filing your tax return as soon as the IRS begins accepting returns. Here are some of the most common:

To get your refund. There’s no reason to let the government hold onto your funds interest-free, so file early and get your refund as soon as possible. While legislation delays receiving refunds for tax returns claiming The Earned Income Credit and the Additional Child Tax Credit until after February 15th, the sooner your tax return is in the queue, the sooner you will receive your refund.

To minimize your tax identity fraud risk. Once you file your tax return, the window of opportunity for tax identity thieves closes. Tax identity thieves work early during the tax filing season because your paycheck’s tax withholdings are still in the hands of the IRS. If they can file a tax return before you do, they may be able to steal these withholdings via a refund that should have gone to you!

To avoid a dependent dispute. One of the most common reasons an e-filed return is rejected is when you submit a dependent’s Social Security number that has already been used by someone else. If you think there is a chance an ex-spouse may do this, you should file as early as possible.

To deliver your return to someone who needs it. If you are planning to buy a house or anticipate any other transaction that will require proof of income, you may wish to file early. This is especially important if you are self-employed. You can then make your filed tax return available to your bank or other financial institution.

To beat the rush. As the tax filing deadline approaches, the ability to get help becomes more difficult. So get your documentation together and schedule a time to get your tax return filed as soon as you can. It can be a relief to have this annual task in the rear-view mirror.