Don’t believe these tax myths. Here’s what to know before you file

From CNBC – by Sharon Epperson –

You may have heard that many taxpayers are in for a big surprise this tax season if they’re banking on a big refund check — or one that’s even close to the amount they received last year — but that’s more of a “tax myth” than reality.

Last year, according to the IRS, more than two thirds of tax filers received refunds. So far this year, the average refund is $3,028 as of March 3, compared to $3,401 over the same period last year — about an 11% decline.

You may get a smaller tax refund this year because several tax credits — including the Child Tax Credit, Child and Dependent Care Credit, and Earned Income Tax Credit — have reverted to pre-pandemic levels. And the above-the-line deduction for charitable contributions of up to $300 was eliminated entirely.

Know the facts when you’re filing your taxes this season. Here are the facts behind some common tax myths:

Myth: Tax returns must be filed by April 15, 2023

• Fact: Federal income tax returns are due April 18, 2023.

A recent survey found nearly 7 in 10 people did not know Tax Day is April 18 this year. One of the biggest tax myths is that tax returns are always due on April 15. If that date falls on a weekend or holiday, Tax Day is the next weekday.

This year, the due date is April 18 because April 15 is a Saturday and the next weekday, April 17, is recognized as a holiday, Emancipation Day, in Washington, D.C. The IRS says, by law, that D.C. holidays affect tax deadlines for everyone the same way federal holidays do.

Some taxpayers may get even more time to file. And those who live in disaster areas in California, Alabama or Georgia will have a much later due date — Oct. 16, 2023 — to file their federal tax return and pay their tax bill if they have one.

Myth: File an extension if you can’t pay your tax bill now

• Fact: If you owe the IRS money, you must pay by Tax Day to avoid interest and penalties.

You can get an extension to file your taxes by filling out a specific IRS document (Form 4868) that will give you six months — until Oct. 16, 2023 — to file your tax return, but not more time to pay your taxes. You can also get an automatic extension to file when you make an electronic payment with Direct Pay on IRS.gov.

The IRS says you should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties. And you have to file your extension request no later than the actual due date of your return. Also, penalties are greater if you owe a tax bill and don’t file than if you file a return and owe but can’t pay the full tax bill at the time.

In the future, make quarterly tax payments regularly or set up a payment plan, said Shiloh Johnson, a certified public accountant and founder of Complyant, a Los Angeles-based startup to help small business owners do their taxes. Then, “if you need to file an extension, you don’t have a payment due because you would have been making those payments throughout the year.”

Myth: If you go to a tax preparer and there are mistakes on your return, they will be liable

• Fact: You are ultimately responsible for all information on your tax return, no matter who prepares it.

So, choose your tax preparer very carefully. Go to the “Choosing a Tax Professional” page on the IRS website for information about the tax preparer’s credentials and qualifications. The IRS recommends following these steps:

• Look for a preparer who is available year-round in case questions come up.
• Avoid any tax professional whose fees are based on your refund or who claims they can get you a bigger refund than a competitor.
• Always review your tax return before signing it.

Tax tip: Compare this year’s return with last year’s

Take the time to compare this year’s tax return with last year’s, said Marinela Collado, a CPA and CFP at Tobias Financial Advisors in Plantation, Florida. Taxpayers should “see what’s changed and what they could have done differently.”

“Now is the time to make those changes proactively for 2023,” she said. “You can’t make changes after the year has come to a close.” Working with a tax professional year-round may help you avoid repeating the same mistake.