Navigate the labyrinth of the federal income tax updates with Jennifer Reynolds, a senior lecturer in taxation and accounting at UT Tyler. Gain the critical knowledge to tackle this tax season head-on, including how to immediately apply credits for that new electric vehicle and maximize home energy improvements for both financial and planetary gain. Reynolds explains the IRS’s Free File program, a tool for those with an income of $79,000 or less, and she deciphers the true cost of enlisting a CPA.
Plus, find out the tax consequences of a weekend garage sale hobby: Do you report earnings as income, or is it just decluttering? From Aunt Martha’s entrepreneurial endeavors to the significance of accurate W-4 withholdings, Reynolds helps you claim every credit you deserve.
TRANSCRIPT
LANDESS:
Getting ready for tax season is more than just gathering up W2s and various receipts you put in a drawer somewhere. It’s also being aware of what’s changed in the tax code this time around. I’m UT Tyler Radio News Director Mike Landess. To gain some clarity and helpful tips, UT Tyler Radio Connects with Jennifer Reynolds, senior lecturer for Accounting, Finance and Business Law. So what’s changed in the tax code that we need to know?
REYNOLDS:
Oh, Mike, there are always lots of changes. Congress likes to wait right until the end of the year and throw some things at us. So there are a few new things this year. I think one that’s getting a lot of buzz is there is a credit for electric vehicles. If you’re in the market for a car and are looking at an EV, and that credit actually started last year. But one new thing that’s happening as of Jan. 1, 2024, is that the individual purchasing the car can actually take the credit at the time of the sale. Traditionally, you’ve had to wait until the following year, file your tax return, get a refund that way, but now you can transfer your credit to a car dealer and essentially get up to $7,500 off on the price of your car right away.
LANDESS:
Or down payment or whatever.
REYNOLDS: Yeah, exactly, so a lot of people are excited about that.
LANDESS: The EV part of it is nice, and a lot of folks won’t be able to afford EVs. What other kinds of new things do we have this time around?
REYNOLDS:
Well, there is also, there’s a lot of focus on energy and trying to look at alternate forms of energy and make things more energy efficient, right? So Congress is focusing on that a lot. There are some new energy credits on things around your house: exterior doors, windows, skylights, even AC units, boiler units, things like that. And I mean, you know, really, we’ve traditionally over the years have had credits for different things like this. They just change each year. And one of the changes that has gone into place now is that credit has increased. It used to be a lifetime max of $500 for credit on things like this around your house. They have now increased that to $1,200, and it’s per year, not lifetime, so each year, you can add a couple more doors, a couple more windows, things like that.
LANDESS:
There’s a lot of tax preparation software available these days, but not everyone has the extra money to spend, and thanks to Free File, that’s a better deal. Tell us about that.
REYNOLDS:
Yeah, I think it’s something that’s just not talked about a lot, and a lot of people don’t know about. So our government puts something in place called “Free File.” But they actually use tax software from well-known companies. Could be H&R Block, TaxAct, people like that. You just have to have a certain income level. There’s a little more to it than this, but roughly $79,000 a year or less, then you would qualify for this. You can go to the IRS website. You cannot go straight through H&R Block or whatever. You need to go to the IRS website and sign up through its program, and then they will connect you with the software. And it’s professional software, just like anyone else would pay for. But you get to file your return for free.
LANDESS:
For those who don’t qualify for Free File, there is that commercial software you talked about. But what if you think you actually need a CPA? In general terms, what might that cost?
REYNOLDS:
Oh well, you know that’s like saying what’s the cost of a house? So, it depends on what you need, really.
LANDESS:
Is it like a per hour charge, or is it a flat fee?
REYNOLDS:
It is based on time, definitely. So two people could have the exact same business, and one person could pay a lot more because they bring in a shoebox full of every receipt they’ve had all of last year, and the other person has already organized their receipts and put in expenses into categories and things like that. But sometimes, especially if you own a business or you bought and sold a lot of things — property, or you sell a lot of things on Marketplace or something, it might be worth it to get a CPA so that you’re not missing out on deductions or certain things you qualify for. We don’t want to pay more taxes than we’re legally required to, or I don’t anyway.
LANDESS:
I can’t imagine anybody would like to do that. Every year, for as long as I can remember, the parting shot for tax preparation advice is do the math and then do it again. Is that still the most common mistake?
REYNOLDS:
I mean probably for people doing it on their own. But now again, software is so readily available and inexpensive that the math part’s gotten a lot easier. It’s just, if you don’t know that there’s a certain credit or deduction available, you’re not going to look for it, you’re not going to enter it, and so you’re not going to get it. And there’s a lot of research that shows every year, for instance, the earned income tax credit, oh goodness, I don’t know how many people, but millions and millions of dollars of that go unclaimed by folks because they don’t file a tax return. And so that’s money that they’re entitled to that the government just sits on.
LANDESS:
Well put there. I’m thinking about retailers building entire marketing campaigns around tax time with ways you can spend that refund check you come buy a car or a TV or a hot tub. But the check is certainly nice, but wouldn’t have been a little better to figure out how to go through the year without paying too much or too little? Is that easier said than done?
REYNOLDS:
No, it’s definitely very, very easy, and it’s, I think, fiscally responsible to do so. You just go back to your employer if you’re employed and you alter your W-4, where you entered your tax information at the beginning of the year, and you can alter that so that every paycheck you receive, you’re getting a little more of your money each check, instead of waiting until the end of the year. That being said, there are plenty of people who I know would never purchase a car or a house or some of these big items they need, if they didn’t use the government as their piggy bank. So it’s more fiscally responsible to get your own money and be using it throughout the year. But there’s a lot of psychology involved in money, and there are a lot of people who just don’t have that saving muscle and so they let the government save it for them, and hence we have this huge tax season where, goodness, if you go to the mall here in the next couple of weeks, it’s gonna be really busy and crazy.
LANDESS:
Yeah, absolutely no question about that. Now, what’s the fastest way to file and get that IRS refund if you’ve got one coming?
REYNOLDS:
Definitely e-filing. Every year the government places more and more incentives for us to e-file to where I think pretty soon it’s going to be that’s the only way you’re going to be able to, but for sure that’s the fastest way. E-file and then also give them your direct deposit information. I hear from people a lot, “I don’t want to give the government my information.” Listen, they know your information.
LANDESS:
They know more than you want them to know.
REYNOLDS:
Yeah, that’s not a concern. If you want your money faster, give them direct deposit. Don’t risk waiting on that check to come in the mail, someone being on the lookout for a check from the IRS and stealing that from you. Direct deposit’s not only the fastest, it’s the safest way to get your refund.
LANDESS:
So if you’re not ready to file by April 15, you can get an extension of 6 months. However, that doesn’t let you off the hook for what you owe. Uncle Sam wants that now.
REYNOLDS:
That’s right. A lot of people think, “Oh, I’m not going to file by April 15 because I owe, and I don’t have the money.” But the trick is you still have to pay your money. They want to get paid on time, and if you don’t, you can have penalties and interests that apply. However, there’s a much larger penalty that applies if you don’t file. So I tell everyone look, even if you don’t have the money, at least file on time, and then set up a payment plan if you need to, or pay as soon as you can.
LANDESS:
That was my next question. If someone, for whatever reason, owes more than they are able to pay by April 15, are there programs available through the IRS for a payment plan, or even, can you use a credit card?
REYNOLDS:
You can use a credit card. They do charge you a processing fee for that, but the IRS actually is really willing and allows you to set up a payment plan. You just have to give them a call and go through it. It’s not nearly as painful as people think, and they’re happy to help you set up a payment plan.
LANDESS:
Have we left anything out? Is there anything you’d like to add in terms of new things that have come along in the tax laws or the tax codes, or credits or whatever, something that people may not be aware of?
REYNOLDS:
I think one thing that I hear a lot from and maybe this is because I hear a lot from some younger people, there is a big new law out that’s been talked about for a couple of years now where if you sell things, like on a Facebook Marketplace, or you pay your friends using Venmo and PayPal, that those companies, those third-party payment processors, are going to send you a 1099, meaning they’re going to tell the IRS that, “Hey, your friend gave you $600 last year.” And so there’s a lot of buzz of, “Oh my gosh, I’m going to have to pay taxes on this money that my mom just gave me because I’m in college, or my friend paid me back for lunch.” And that’s not the intent.
LANDESS:
A $600 lunch?
REYNOLDS:
Well, I’ve got a kid in college and those add up fast.
LANDESS:
Mom, I’m not kidding, it really was $600.
REYNOLDS:
So that’s not the intent. It’s not just for friends’ and family payments, it’s for if you’re selling things. You’re selling a lot of, you had a garage sale and now people pay via Venmo — things like that. However, while everybody’s figuring this out and trying to calm down about it because everyone’s in an uproar, IRS changed it for this year and said, “Well, we’re going to bump that back up to $20,000 while we kind of stabilize this situation and figure it out.” So you should not be getting a 1099 this year from Venmo. If you do, it doesn’t mean you owe taxes on that. You only owe taxes if you earned a profit on selling that furniture. In other words, you sold it for more than what you paid it for, which is not usually what happens in a garage sale.
LANDESS:
Who determines that? I mean, how does it…
REYNOLDS:
Well, you do, and this might be where you need a CPA. My Aunt Martha sells so much furniture and stuff through garage sales, it’s kind of it’s her hobby. It’s turned into a job, and so my Aunt Martha needs a CPA to help her figure out, “OK, I sold $20,000 worth of stuff last year, but how much did I pay for that stuff? Am I going to have to pay taxes on it?” So if that’s your situation, that might be a case where you need a CPA to help you because it’s more of a business. But if you’re just receiving payments from your mom, those are really gifts. You don’t have to report that.
LANDESS:
Best advice you can give me right now about tax season 2023?
REYNOLDS:
Ask questions and ask for help if you need it. Some people never file their taxes because they think they don’t make enough money to worry about it. Yet they’re due thousands of dollars from the earned income tax credit or child tax credit, and they’re just not knowledgeable enough to know that — plenty of people aren’t. That’s OK. So ask questions, even if it’s of an employer or friends around you or walking into a tax preparation site and saying, “Is this worth me spending my time with you?” And if I told you, “Yes, I’m going to charge you $200, and you’re going to get back $6,500, you’re going to say, yes, let’s do this.” So asking questions.
LANDESS:
Thanks for listening as UT Tyler Radio Connects with Jennifer Reynolds. I’m Mike Landess with UT Tyler Radio.
(Transcripts are automatically generated and may contain phonetic spellings and other spelling and punctuation errors. Grammar errors contained in the original recording are not typically corrected.)
