Local accountant talks changes that will impact many tax returns
Published 8:30 am Saturday, January 7, 2023
As tax season begins, many taxpayers who choose to file their own taxes may be surprised by the state of their refund. According to Tax accountant Claude Luttrell of American Tax in Lanett, many codes are reverting back to what they were before 2020.
Particularly, Luttrell said that two codes are likely to catch taxpayers off-guard. Some of the tax codes that changed during the COVID-19 pandemic were the dependent care credit and the child tax credit. Last year, dependent care was converted into a refundable credit. Taxpayers received 50 percent back in their refund.
However, this year, daycare expenses are reverting back to a nonrefundable credit.
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“That’s one loss that people are going to be seeing on their tax refund this year,” Luttrell said.
The child tax credit was also different last year. Those who reported children under 17 received $3600 per child rather than the former $2000. However, this year, the code will be back to what it was before.
Almost all of the COVID relief tax programs for families with children, childless workers and small business owners have expired, according to the H&R Block Tax Season overview page. The Recovery Rebate credit and the expanded Earned Income Tax credit are also two expiring pandemic-related programs that may take taxpayers by surprise this year.
For taxpayers who don’t seek professional guidance, these changes may leave a substantial, unexplained difference in their tax refund from last year to this year.
“They’re going to feel a big difference even though it’s going back to the way it was supposed to be before 2020,” Luttrell said.
Severance pay and unemployment income are both taxable in the year that it is received. According to the H&R Block 2023 Tax Season Changes, anyone who is receiving unemployment income in 2023 should request that taxes are withheld from the payments to avoid owing more next year.
Last year, there was an 85% increase in H&R Block clients reporting crypto transactions. The tax rate on cryptocurrency varies between 0% and 37%, and those who sell cryptocurrency through exchanges will get a Form 1099 for those transactions, so they must be reflected in tax filing.
Another change this year is that individuals who receive more than $600 for goods and services through apps like PayPal, Venmo, Etsy or Facebook Marketplace will receive a 1099-K.
According to Luttrell, many people don’t stay up-to-date with these changing tax codes from year to year and may miss out on refund earnings. For example, many of his clients might have missed out on the refundable credit for daycare, which was only available for one year.
Hiring a tax professional can also keep people who are nervous about making mistakes and having to contact the IRS, Luttrell said.
“With a professional, you get all that protection,” Luttrell said.
Many taxpayers choose to use online services like TurboTax to cut down on costs. Luttrell said that option may work for a single individual with a straightforward return. However, taxpayers with businesses or dependents may end up paying more than they saved by making a mistake or missing out on refundable credit.
“It could make a difference in you getting your refund back,” Luttrell said.
However, Luttrell, who has been in the business for 11 years, warned taxpayers to thoroughly vet tax professionals to make sure they’re trustworthy. Many so-called professionals don’t have full certifications. Luttrell said tax accountants have access to a lot of sensitive information.
“It’s serious business — as serious as buying a house or getting a loan,” Luttrell said.