advertisement

Drowning in IRS minutia despite so-called ‘easier’ taxes? Here are some tips

Given that Congress simplified income taxes in 2018, why do basics, such as claiming a child tax credit, open up a rabbit hole of schedules and work sheets?

“I always chuckle to myself when I hear about tax simplification,” College of DuPage Assistant Professor of Accountancy Mark Yahoudy said.

“I’ve been involved for almost 40 years in taxation and it never really gets simpler.”

That includes the child tax credit.

“There are six or seven tests you have to be able to meet to claim that child or other relative. So, that’s part of the problem,” he noted.

Numerous changes were instituted under the Trump administration to make taxation easier, Yahoudy said. Those included doubling the standard deduction to entice people to use it, rather than the complicated option of itemizing deductions, such as medical expenses, mortgage interest or charitable gifts.

“The thought was, ‘if we get more people to take the standard deduction, people won’t have to mess around with itemization,’” Yahoudy said.

It worked — sort of.

About 90% of taxpayers take the standard deduction now, Yahoudy said. But “the amazing thing to me is that everybody I encounter still keeps track of their mortgage interest and charitable deductions. I guess it’s an education thing that hasn’t been rolled out.”

And they show up at COD’s free tax preparation service armed with spreadsheets, he added.

  COD accounting student Adolfo Fragoso works with Jimmy Salgado of Wheaton on his taxes Saturday in Glen Ellyn. The College of DuPage’s popular free tax program is offered in partnership with the IRS. Joe Lewnard/jlewnard@dailyherald.com

The reality is all those receipts from Goodwill and pharmacies are “only deductible if they exceed the standard deduction,” said Itasca Mayor Jeff Pruyn, who is president of an accounting firm. “When I tell (clients) we don’t really need them, they say, ‘why am I saving all these receipts?’”

Another common misconception is not withholding enough money from salaries, the two CPAs noted.

The government simplified Form W-4, which employees fill out to determine the correct amount of taxes employers should withhold from paychecks. But the form is so confusing, “I have trouble understanding it,” Yahoudy said.

“As a result, people fill it out incorrectly, then they get to the end of the year and they owe money,” he added.

One group vulnerable to W-4 mishaps are married couples filing jointly, Pruyn said. Experts advise spouses to coordinate and read up on W-4 nuances, such as only one spouse should claim children as dependents on the form. If both do, it could result in a substantial underpayment.

Meanwhile, taxpayers who dip into their retirement funds without checking the fine print can also face sticker shock, Pruyn explained.

“They’ll come in and say, ‘I took a distribution from my retirement account, but don’t worry, I’ve already paid the tax.’ But if they’re only withholding 10 or 20% — the tax on an IRA distribution if you’re under 59 is around 30%. It doesn’t pay all the tax,” Pruyn said.

What else can trip up taxpayers?

The Earned Income Credit has been highly touted and can be worth up to $7,430. But it’s only “given to people who have jobs but don’t make that much money,” Yahoudy said.

For example, a single person must earn less than $17,640 and a married couple with two kids must earn less than $59,478 to be eligible for 2023 tax year EICs.

  College of DuPage Assistant Professor of Accountancy Mark Yahoudy oversees accounting students as they help people do their taxes for free through an IRS program on Saturday in Glen Ellyn. Joe Lewnard/jlewnard@dailyherald.com

Also, the IRS grants extensions to file but that doesn’t extend to payments Pruyn said.

“When people ask about extensions, they keep thinking an extension gives you time to pay … instead of just to file,” he warned. “If you owe them money after April 15, they will charge you interest on it.”

The IRS has a sliding scale of fees and Illinois’ is “a lot worse than the feds” Pruyn added. “Illinois will charge you a 10% penalty” for late taxes starting at 31 days.

Got tax questions? Here’s some resources:

• COD’s free tax preparation service is coordinated with the IRS. The government offers Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs for seniors and taxpayers earning less than $64,000 a year or those who have disabilities or language difficulties. For help, go to gov/individuals/free-tax-return-preparation-for-qualifying-taxpayers or call (800) 906-9887.

• AARP provides tax advice and preparation help at (888) 227-7669, taxaide@aarp.org, and aarp.org/money/taxes/aarp_taxaide.

• For guidance on tax withholding, check out irs.gov/individuals/tax-withholding-estimator.

  Accounting student Varshit Hirpara, lower right, assists members of the Retana family of Aurora, including, from left, Lizbeth, daughter Samantha, and Armando, do their taxes for free through an IRS program at the College of DuPage in Glen Ellyn. Joe Lewnard/jlewnard@dailyherald.com
Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.