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Terry Savage: Tax filing ironies

Terry Savage, Tribune Content Agency on

Have you filed your 2023 income tax return yet? Millions already have. The rest of us are now officially procrastinators. But we’ll get it done. Except for the 125,000 high-income earners who did not even file tax returns going back to 2017 — and who owe roughly $100 billion in back taxes.

It boggles the mind. How did the IRS even find these 100,000 people with incomes between $400,000 and $1 million who failed to pay their taxes between 2017 and 2021? Were they part of the underground economy, dealing strictly in cash? Were they drug dealers or con men (and women) scamming your bank account?

Nope. The IRS finally got around to matching W-2 forms and 1099 forms filed by their employers or investment firms denoting interest or other payouts. So while you were scrambling to find your 1099-INT form, reporting the interest on your money market fund and fearing an audit if you omitted those few dollars from your reported income, some very wealthy people slipped through the clutches of the IRS.

Think about that while you struggle to deduct a portion of your home as a business-only office, or calculate the formula for the miles you drove your car for work. And the IRS waited until it got an appropriation from Congress to go after tax cheats?

Meanwhile, behind the scenes, there’s a huge fight going on in the tax prep industry over the government’s plan to expand the current IRS FreeFile Guided Tax program (which uses tax prep services as partners) and a proposed new DirectFile system, which would allow taxpayers to file directly with the government.

The current FreeFile system is available to all taxpayers with less than $79,000 in adjusted gross income. If you go to IRS.gov and put “free file” in the search box, you will be able to follow links to companies in the partnership. Some offer free state tax returns as well. The search tool will give you a choice of “trusted partner” filing services in your state. But you won’t find the expected “big names” on the list.

The largest tax prep companies have been charged by the Federal Trade Commission for misleading customers into choosing higher cost services instead of FreeFile and for deceiving consumers with bogus advertisements pitching “free” tax filing that millions of consumers could not use. Some are in the process of repaying customers who were pushed into more costly services, even though they qualified for FreeFile.

While those battles with the FTC remain in litigation, the industry is fighting back against the idea that a competing government-provided tax preparation service would be motivated to give people the best advice and most deductions. On the other hand, the government notes that many taxpayers who don’t file because of low income are missing out on credits, such as the child tax credit.

While the government and the tax firms fight it out over who can help you pay your taxes more easily, don’t forget that it’s still your responsibility to get them filed. And the most efficient way to do that is by filing online, whether you use FreeFile or a tax prep service or do it yourself.

 

Remember to include your current bank account and bank routing number to get your expected refund. And make sure the bank account name, mailing address and Social Security number match those on your return.

The IRS has nearly 250 Taxpayer Assistance Centers around the country that have extended operating hours on Tuesdays and Thursdays during the tax filing season. Call 844-545-5640 to find your local offices and make an appointment. Or get help from VITA — Volunteer Income Tax Assistance. Call 800-906-9887 for locations. And you can contact AARP for their Tax-Aide sites by calling 888-227-7669.

All provide free help for those who have questions about their income taxes — and deductions. Oh, and speaking of deductions, there is just one big one still available for 2023. If you qualify based on earned income (or even spouses filing jointly where one has earned income), until April 15 you can still open a 2023 IRA to get a tax deduction for your contribution.

Mark Twain’s advice still stands: “Nothing’s sure but death and taxes.” You know that — and now so will those wealthy people who didn’t even file. And that’s The Savage Truth.

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(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2024 Terry Savage. Distributed by Tribune Content Agency, LLC.


 

 

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