News: New Hampshire residents must file federal income tax returns by midnight, Monday, April 18.
What it Means to You: Filing taxes can seem daunting, but it doesn’t have to be complicated for most people. Let’s answer some FAQs.
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What happened to the 1040EZ form? Because the regular 1040 that we have to use now doesn’t look that EZ to me.
The 1040EZ was the form to use if you were filing and taking the standardized deduction without itemizing or having any other complications. The IRS got rid of it with the 2018 tax year because, with the December 2017 tax changes, the standardized deduction increased substantially. This year it’s $12,550 for individual filers; $25,100 for married, filing jointly; and $18,800 for those filing as heads of households. Most low and middle-income people filing their taxes don’t have enough deductions to equal the standardized deduction, so most should be taking it.
While the form looks complicated, if your taxes are straightforward – you worked for an employer or employers from whom you got a W-2 form – you can ignore much of what’s on the 1040. There is also a 1040SR for those over 65 that includes provisions for Social Security, retirement and pension accounts.
- What do you mean “don’t have enough deductions”? I have all sorts of deductions, especially since I’ve been working at home – my internet, my heat, food… come on!
Sorry, unless you’re self-employed, you can’t deduct the expenses of working at home. You are not self-employed if an employer is deducting taxes, Medicare and Social Security from your pay. If you received a W-2 from an employer, you are not self-employed and can’t deduct expenses incurred working from home. This is another change that came with the December 2017 Tax Cuts and Jobs Act. The new law raised the standardized deduction, but eliminated business expense deductions for the employed. This included those old favorites like mileage, subscriptions, internet, three-martini lunches, etc.
The 2017 tax changes also eliminated deducting mortgage interest on a home equity loan or line of credit unless the money was used for home repairs, and all sorts of other deductions. But since the standardized deduction is so high, your deductions likely wouldn’t have equaled it anyway.
- So, I can’t deduct anything?
Well, for this year only you can deduct $300 for charitable donations if it was a cash donation that you got nothing in return for. You can take this deduction even if you also take the standardized deduction. This benefit ends with the 2021 tax year. Next year it will go back to being part of itemized deductions.
- What if I’m self-employed?
If you’re self-employed, you can deduct business expenses. You also have to pay self-employment tax to make up for not paying Social Security and Workers Compensation through your pay. It’s complicated, even if you don’t make great money. Paying a CPA or other tax professional to do your taxes if you’re self-employed will pay off, even if you owe money, because you’ll owe less than you would trying to figure it out on your own.
- Speaking of not having a lot of money, is there a point when you make so little you don’t have to file taxes?
Yes, there is. This year, if you’re under 65, you don’t have to file if you made $12,550 or less. If you’re over 65, it’s $14,250. There are other limits for those who are married and file jointly and those who file as head of household.
- I know people in Maine and Massachusetts who don’t have to file until Tuesday, April 19. What’s the deal?
Maine and Massachusetts celebrate Patriots Day, a holiday celebrated the third Monday of April. So, when it coincides with tax day, then they get a one-day extension.
- I know you said that the 1040 isn’t complicated, but isn’t it even easier to use a free tax preparation service?
Yes and no. There are local nonprofit tax preparers [VITA is one such service in New Hampshire] who will help with taxes for free, particularly for seniors or those for whom English is a second language. Keep an eye, however, on other services, particularly online ones. Even those that advertise free service often have fees, or try to upsell you a fee-based product. The good news is, you stop before you pay if you find yourself in that situation. If your taxes are complicated – if you’re self-employed, for instance – it’s best to those services will cost money.
- What about all those COVID-19 benefits we got? Do I have to pay taxes on those?
The stimulus payment and extended child tax credits are not taxed. Do not list them as income on your tax return. There isn’t a person going over returns for the IRS who’s going to say, “Hey look, Gary added $1,400 that wasn’t part of his salary! That must mean he accidentally added his stimulus!” No, that won’t happen. If you didn’t get a stimulus check, or didn’t get the amount you should have, look up Recover Rebate Credit on the IRS website and follow the instructions.
The child tax credit was a prepayment of a credit people with kids were to get when they filed their taxes. It shouldn’t mean any change to the refund.
If you got the enhanced unemployment benefit, you will have to pay taxes on it. Last year’s tax break on the benefit is gone and it’s back to business as usual. While it may seem nuts that the government is giving you a small amount to help you eat and keep a roof over your head while you look for work, then taxing you on it – yes, it is. But that’s the way it works.
- I’m worried I’ll never get my return because I heard the IRS is having all sorts of issues.
If you e-file (file online) a 1040, you will get your return fairly quickly. People who filed at the end of January or early February were getting their money as fast as a week later. It’s 2022. There’s no reason in the world, if you are getting money back, to file taxes by stuffing it all in an envelope and mailing it.
- I wish I were getting a return! I’m going to owe money. Will it take the IRS a long time to process my payment since they’re so backed up? Can I wait to file?
Not at all! The IRS processes payments quickly and expects you to pay on time. If you owe money but can’t pay it by April 18, you can request a payment plan. This comes with a fairly low interest rate, but it’s better than getting in trouble for not paying at all.
The source for most of this information is IRS Publication 71, “Your Federal Income Tax.” It is for information purposes only, and those with tax questions should seek the help of a qualified tax professional.
