Forbes - If You Claim The Earned Income Tax Credit, Your Refund Can't Come Until This Date
The episode covers several key tax-related topics, starting with the removal of sections from the IRS's Internal Revenue Manual, which were taken offline as part of a compliance review with a presidential executive order. This has caused concern among tax professionals who rely on these documents for guidance. The episode also highlights the impact of a federal hiring freeze on IRS operations, potentially affecting taxpayer services and compliance efforts. Additionally, it warns about new tax scams targeting taxpayers during the tax season, emphasizing the importance of being cautious with unsolicited messages claiming to offer economic impact payments.
The discussion extends to federal estate taxes, explaining the current exemption limits and the small percentage of estates that are subject to these taxes. It outlines estate planning strategies like Q-tip trusts and qualified domestic trusts that help minimize tax liabilities. The episode also touches on the potential political challenges of repealing the estate tax, noting its historical repeals and returns. Practical advice is given on tracking tax refunds and understanding the IRS's refund issuance process, particularly for those claiming the Earned Income Tax Credit or Additional Child Tax Credit.
Key Points:
- IRS documents were removed for compliance review, affecting tax professionals.
- Federal hiring freeze impacts IRS operations, potentially delaying services.
- Tax scams are prevalent; be cautious with unsolicited messages about payments.
- Estate tax affects a small percentage of estates; planning can minimize taxes.
- Track tax refunds using IRS tools, especially for EITC and ACTC claims.
Details:
1. 🎙️ Introduction to Tax Breaks
- Kelly Phillips Herb, a senior writer with Forbes and a tax attorney, hosts the segment, offering her expertise on tax issues.
- The episode will explore the implications of disappearing IRS documents, providing practical advice on how taxpayers can safeguard their records.
- New tax-related scams are highlighted, with specific strategies on how to identify and avoid them.
- Insights into IRS job offer rescissions are discussed, explaining the potential impacts on job seekers and how to navigate these challenges.
- A detailed discussion on federal estate taxes is included, offering concrete examples of how recent changes might affect estate planning.
- Tax filing deadlines are reviewed, providing actionable steps for taxpayers to ensure compliance and avoid penalties.
2. 📜 IRS Documents Disappearance: Concerns and Causes
2.1. IRS Manual Sections Removal
2.2. IRS Hiring Freeze and Impact
2.3. Tax Season and Scams
3. 💸 Navigating Tax Refunds and Avoiding Scams
- The IRS issues most refunds in less than 21 days when filed electronically with direct deposit.
- Refunds for those claiming EITC or ACTC are held until February 15 due to the Path Act to prevent fraud.
- EITC and ACTC refunds should become available by March 3rd, taking into account processing times and the President's Day holiday.
- Taxpayers can track their refund status using the 'Where's My Refund' app, with updates typically available by February 22nd.
- The IRS is mandated to issue refunds in one complete payment and cannot release partial refunds not associated with EITC or ACTC early.
4. 📊 Insights into Tax Filing and Audit Odds
- The IRS expects to receive 140 million individual federal income tax returns by April 15, 2025, with an additional 20 million filed on extension or late by year's end.
- In fiscal year 2023, the IRS processed 271.5 million federal tax returns and supplemental documents, with 179 million being income tax returns predominantly from individuals.
- Individual income tax payments before refunds totaled almost $2.6 trillion in fiscal year 2023, compared to $457 billion collected from businesses. Individuals thus paid nearly five times more than businesses.
- These figures highlight the significant role of individual taxpayers in federal revenue collection, emphasizing the importance of accurate and timely tax filing to avoid penalties and ensure smooth processing.
5. ⚖️ Understanding Federal Estate Taxes
- The average IRS audit rate for individual tax returns is 0.44%, or about one in every 227 people, illustrating its rarity.
- In stark contrast, the odds of winning a prize in Powerball are significantly higher at 1 in 25, or about 4%.
- To provide further context, consider that the odds of dying from a bee, hornet, or wasp sting are 1 in 59,500, while the chance of being struck by lightning in any given year is 1 in 1,222,000.
6. 🏛️ Estate Planning: Techniques and Policies
- The federal estate tax exemption will rise to $13,990,000 per person or $27,980,000 per married couple by 2025, resulting in very few estates being subject to the tax.
- In 2023, only about 7,100 estate tax returns are expected to be filed, with just 4,000 estates owing taxes, representing just a fifth of 1% of deaths.
- Estate planning techniques, such as Q-tip Trusts, allow families to reduce or avoid federal estate taxes by transferring wealth to the next generation.
- A Q-tip Trust allows income from trust assets to go to a surviving spouse during their lifetime, with the principal passing to other beneficiaries upon their death.
- Qualified Domestic Trusts (QDOTs) allow assets to be passed to non-citizen spouses without triggering estate taxes, with taxes deferred until the surviving spouse's death.
- International estate tax treaties exist to minimize double taxation, with the US having agreements with 14 countries. However, these treaties vary significantly in scope.
- Specific techniques like Q-tip Trusts and QDOTs are crucial for strategic estate planning, particularly with the impending changes in federal estate tax exemptions.