Tax Day: What You Need for Tuesday's Deadline

Tax Day is Tuesday, April 18th, and filing last-minute (in the correct manner) is critical. Are you ready? 

Having a solid tax plan can help retirees maximize their retirement income and avoid unexpected tax liabilities. But many Americans push this important-yet-unpopular task to the wayside, only to bring panic as tax day on April 18th creeps up. According to the Internal Revenue Service, 20-25% of all Americans wait until the last two weeks before the deadline to prepare their tax returns. At that late date, there are only two things you can do: File your taxes pronto, or request a tax extension.

Regardless of whether you're a recent retiree or are approaching retirement, our goal is to equip you with the tools necessary to make informed decisions about your taxes. Here are some key considerations to keep in mind as you prepare to file your taxes for 2022.

Organization is key

Having everything in one place—even if it’s just a shoebox—will help make preparation of your income tax return easier. Some of the documents that might be required to complete the process include:

• Form W-2 (your employer must mail the form, which shows your earnings and taxes withheld, by Jan. 31)
• Form 1099-INT, for interest earned, such as from a savings account
• Form 1098, Mortgage Interest Statement, which shows mortgage interest paid on a loan for your own home and receipts for all purchases and payments, including those for business, healthcare and education.
• Older adults have special tax situations and benefits, like Form 1040-SR. Understand how that affects you and your taxes. Get general information about how to file and pay taxes, including many free services, by visiting the Individuals page.

Avoid Common Mistakes

Retirees should be particularly careful when filing their tax returns as common mistakes can delay the processing of the return or the refund they are owed. One of the most significant errors is missing tax forms. This includes forms such as 1099's, which may occur if you receive investment income. 

Although it's easy to overlook such forms, the IRS receives copies of them and will expect that information to be included on your return. Other common mistakes include the following: 

• Incorrect spelling or digits for your name.
• Incorrect Birth date.
• Incorrect Social Security number.
• Incorrect bank account and routing number information.

It's crucial to double-check all information before submitting your tax return. Double-check all information before submitting your tax return, and consider filing electronically to streamline the process. Taking these steps can help ensure a smooth and stress-free tax filing experience.

You Can Get an Extension to File— But Not to Pay

For retirees who are unable to file their tax returns by the April 18 deadline, the IRS allows them to request a six-month extension. This extension can be helpful in situations where a taxpayer is missing a tax form or needs additional time to prepare their return. Taxpayers can request an extension for free via IRS Free File, regardless of their income.

It's essential to note that while an extension will give retirees additional time to file their returns, it doesn't extend the deadline to pay their federal taxes. The tax bill has to be paid by the April 18 deadline. In cases where a taxpayer is missing a tax form, they can estimate their tax bill by using tax software and inputting estimates for any missing forms.

It's also worth noting that requesting a federal extension doesn't automatically extend the deadline for state tax returns. Those who need additional time to file their state tax returns must request a separate extension. 

There is no penalty for filing an extension. However, not paying on time or enough, or failing to file altogether, may cost you.

• If you don’t pay the full amount you owe, the IRS will charge you interest on the unpaid balance until you pay the full amount.
• If you don’t pay at least 90% of the amount you owe, you might also be subject to a late payment penalty. The penalty is usually half of 1% of the amount owed for each month, up to a maximum of 25%.
• If you don’t file either your return or Form 4868 by the tax filing deadline, you’ll be subject to a late filing penalty. The penalty is usually 5% of the amount you owe for each month, up to a maximum of 25%.

After you file the extension, you’ll have until October 15 to gather your documents and finish your filing.  When you complete your return, you should include the amount you’ve already paid in the payments section of your Form 1040.

Know Which Health Coverage Form You Need

Three versions of Form 1095 exist: A, B and C. Form 1095-A will be sent to you if you get your health insurance through the Health Insurance Marketplace. You will need information from this form to file your tax return, but don’t include the form with your return. You will receive Form 1095-B if you are covered by minimum essential coverage, and if you are covered by a plan sponsored by an applicable large employer (ALE), you will get 1095-C. You don’t need to wait for 1095-B or 1095-C to file your return.

About filing your tax return

If you have income below the standard deduction threshold for 2022, which is $12,950 for single filers and $25,900 for married couples filing jointly, you may not be required to file a return. However, you may want to file anyway. You may be able to take advantage of several features and benefits in the tax system which could reduce the amount you owe. Or in many cases, especially for people with low incomes, these features can increase the amount you could receive in a refund. There are some key factors to make sure you look out for.

Changes for 2023

For tax year 2022 some tax credits that were expanded in 2021 will return to 2019 levels. This means that affected taxpayers will likely receive a smaller refund compared with the previous tax year. The 2023 changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.

1. Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
2. For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get a maximum of $530 in 2022.
3. The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

Tax Planning With Agemy Financial Services