Forbes - How To Keep Your Sanity And Survive Tax Season | Tax Breaks
The host, Kelly Phillipserb, a senior writer for Forbes and tax attorney, discusses the current tax filing season, noting a trend of delayed filings. She advises taxpayers to consider filing for an extension to ensure accurate returns, as it does not increase audit risk. Extensions provide extra time to file but not to pay taxes, which are due by April 15, 2025. The video also covers the Treasury Offset Program resuming overpayment recoveries and the implications for Social Security beneficiaries. Additionally, it highlights the issue of unemployment benefit scams and advises on handling incorrect 1099K forms. Practical tips for managing tax season stress include breaking tasks into smaller parts and taking breaks. The video concludes with a discussion on retirement account withdrawals, emphasizing the importance of understanding tax implications and exploring alternatives before withdrawing funds.
Key Points:
- File for an extension if needed to ensure accuracy; it doesn't increase audit risk.
- Pay taxes by April 15, 2025, even if filing for an extension.
- Be aware of the Treasury Offset Program resuming overpayment recoveries.
- Report unemployment benefit scams if you receive incorrect 1099G forms.
- Understand tax implications before withdrawing from retirement accounts.
Details:
1. 🎙️ Meet Your Host: Kelly Phillipserb
- Kelly Phillipserb is the host of Tax Breaks and a senior writer for Forbes.
- She is widely recognized as 'tax girl' across the web, indicating a strong personal brand in tax-related content.
- Kelly is a tax attorney, providing her with professional expertise and practical experience in the field of taxation.
2. 📉 Current Tax Filing Trends
- Tax filing and processing numbers have decreased, continuing a trend observed since the tax season opened on January 27, 2025.
- Most taxpayers are delaying their tax filing as indicated by IRS tax filing season statistics.
- As of mid-March, tax returns filed are down by 12% compared to the same period last year.
- Economic uncertainty and changes in tax laws are contributing to the delay in filing.
- The IRS has reported that electronic filings have also seen a decrease of 8% year-over-year.
- Tax preparers are seeing a shift with more clients seeking extensions, indicating a need for more time to prepare accurate returns amidst new regulations.
3. 🗓️ Extensions: Myths and Realities
- Filing for an extension is free and easy, and helps ensure a complete and correct tax return.
- Statistics do not support the belief that filing for an extension increases the likelihood of an audit.
- Filing a complete and correct return on extension is better than a rushed and flawed return by tax day.
- Filing for an extension provides an extra 6 months to file, moving the deadline to October 15, 2025, but payment is still due by April 15, 2025.
- US persons with foreign financial accounts must file an FBAR by April 15, with an automatic extension to October 15 if missed, without needing a separate extension request.
4. 💸 Social Security Adjustments and Impact
- The Social Security Administration will resume recovering overpayments through the Treasury Offset Program (TOP), suspended since March 2020 due to COVID-19, affecting tax refunds and other government payments.
- The Biden administration increased the withholding of benefits checks from 10% to 100% to recover overpayments, effective March 2024, to mitigate financial hardship concerns.
- Beneficiaries may face financial difficulties due to increased withholding rates, but the change aims to address long-standing overpayment issues.
- Understanding why overpayments occurred is crucial: they often result from clerical errors or changes in beneficiary status that weren't promptly reported or processed.
- The resumption of the TOP program and increased withholding could significantly impact beneficiaries relying on these payments, necessitating communication and support from the SSA.
5. 🗂️ Managing Tax Season Stress
5.1. Social Security Withholding Rates and Overpayments
5.2. Handling Tax Scams and Fraudulent Unemployment Benefits
6. 📋 Demystifying Form 1099-K
6.1. Tax Preparation Strategies
6.2. Understanding Form 1099-K
7. 🔍 Navigating Business and Personal Transactions
- In 2024, third-party network payments over $5,000 are reported on Form 1099-K, but this threshold does not apply to payment card transactions.
- The taxability of a payment is determined by its nature, not just by the receipt of a Form 1099-K.
- Non-taxable personal payments, such as gifts or cost-sharing, should not appear on Form 1099-K. If they do, they remain non-taxable, but correcting the record may be necessary.
- Casual sales of personal items at a loss are generally non-taxable, even if reported on 1099-K, while gains are reported as capital gains on Schedule D.
- Business transactions, including occasional sales like handmade items, are taxable and should be reported on Form 1099-K.
- Understanding the policies of payment apps and online marketplaces is crucial to avoid mixed reporting of business and personal transactions.
- To correct an incorrect 1099-K, contact the issuer to amend the form and ensure accurate tax reporting.
8. 💼 Retirement Plan Withdrawals: Rules and Exceptions
8.1. Understanding 1099 Forms and Tax Adjustments
8.2. Current Economic Climate and Retirement Plans
9. 🧩 Tax Trivia: The Iconic Tingle Tables
- Retirement accounts are a main source of liquid savings for many Americans, often used for emergency funds.
- Typically, withdrawing funds before age 59 and a half results in a 10% penalty plus normal income tax.
- Exceptions to this penalty include education expenses, disaster recovery, and new taxpayer-specific rules.
- A recent rule allows a $1,000 penalty-free withdrawal for emergency expenses if the retirement plan permits it.
- It's important to review your specific 401k plan as withdrawal rules can vary.
- Ordinary income taxes apply to distributions unless they are repaid to the 401k plan.
- Domestic abuse victims now have an exception, allowing up to $10,000 or 50% of their vested accrued benefit to be withdrawn, adjusted for inflation.
- Consider the long-term impact of these withdrawals, including reduced account balance and growth potential.
- Evaluate other financial options like payment plans or credit before deciding to withdraw from retirement funds.
10. 🔒 Ensuring Safe Tax Refunds via Direct Deposit
- In 2023, the IRS issued nearly 121 million tax refunds totaling more than $461 billion, highlighting the scale of tax refund distribution.
- Nearly 91% of tax refunds were issued by direct deposit last year, increasing to 97% this tax season, demonstrating a significant shift towards safer refund methods.
- Direct deposit is promoted by the IRS as the easiest, safest, and fastest way to receive tax refunds, reducing the risk of theft and fraud.
- A case study of Hatikosella Machima, a former USPS employee, illustrates the risks of not using direct deposit. He was found guilty of stealing checks, including tax refund checks, totaling over $1.6 million by altering and depositing them fraudulently.
- Machima's case, resulting in potential sentences of up to 30 years for bank fraud and 5 years for mail theft, underscores the vulnerabilities of traditional check methods and the importance of secure digital transactions like direct deposit.
11. 📬 Wrap-Up and Listener Interaction
- Encouragement for listeners to provide feedback via email to kerbfores.com.
- Listeners are urged to share the podcast episode if they enjoyed it, with links available on Forbes.com.
- The podcast aims to make listening about taxes less painful than the act of paying them.