PADUCAH — Despite W-2s not coming out until late January, tax experts urge taxpayers to prepare for the upcoming season.
Samantha Floyd owns Egners Tax Service in Paducah and has been doing taxes for 20 years. Floyd already services 740 tax filers but expects 400 more in the coming tax season.
Samantha Floyd
Floyd said every tax season is different, but this year may be like no other.
“I do expect the season to be busy,” said Floyd.
She mentioned that she has witnessed an increase in extensions in the past, indicating that people either wait until the last minute to file their taxes or are made aware of what they need to bring to appointments.
“A lot of things that you can do to prepare for tax season is to access your prior tax return; it will help you,” Floyd said. “Things like a map to determine what you have the prior year. And then you can just pick the things off it and see that you had this W2 or social security.”
Floyd said that considering the previous year, it is crucial to reflect on any new opportunities that may come up in 2023.
Floyd suggests considering if there have been any significant events in the current year, such as you serving as the executor of an estate, starting a business, or receiving an inheritance.
According to Floyd, taxes will see significant changes this year, and those factors make a difference in how taxpayers determine what to include on tax returns.
The Corporate Transparency Act introduced beneficial ownership information that taxpayers must now report.
“Those are subjected to huge penalties if you ignore it,” she said. “So that’s going to be corporations, partnerships, and LLCs have to all do that. Unless you’re exempt–there are always gray areas within the IRS.”
There are also Residential Energy Credits, and in Floyd’s tax professional career, she said that it is a better break than she has seen in years past.
“So if you put in windows, doors, insulation, geothermal, or anything, you need to let your preparer know. There are also vehicle credits for the same type of thing.”
Floyd said bonus depreciation is reduced to 80% when it was initially 100%.
According to the IRS, Bonus depreciation enables business taxpayers to claim extra depreciation for the cost of qualifying business property over and above regular depreciation allowances.
“So, for instance, let’s say I bought a desk for $5,000,” she said. “So I could take the total $5,000 off in one year before, now bonus depreciation is down 80%. So now I can only take 4000 of it off, and the remaining 1000 will have to be carried over the years.”
The Internal Revenue Service (IRS) has recently launched the Direct File System, a new tool that enables taxpayers to file their tax returns directly with the agency. Although the system is currently in its pilot stage, tax expert Dean Owen assumes that it has the potential to replace the traditional way of filing taxes.
“We suspect by the end of this decade, 90% of people in America will be getting their taxes done by the IRS for free automatically,” he said. “Everything that’s going to be on your tax return has already been reported to the IRS,” Owen said. “The IRS has everything they need to file your taxes.”
He said the system might work well for some people than others, especially those who might own a business.
“If you have rental properties or small businesses,” he said. “If you have investments where your basis or cost is not reported, you had an unconventional investment, capital gains; if you invest in land, and you’re going to go to sell, the IRS doesn’t have the information to file your tax returns. So it’s by no means something they can do for everyone.”
According to Owens, filing taxes before the deadline is advisable to avoid penalties. Early tax filing can also impact eligibility for the Direct File System; Kentucky is waiting to implement this.
Owens also reminded taxpayers that they have up to three years from the initial tax year to file unclaimed funds.
“Every year in America, about $40 billion was lost because taxpayers had refunds coming and didn’t claim them,” he said. “That’s a two-edged sword. Granted, you lose the right to ask for your money back after three years, but they lose the ability to come after you for any money you owe them. So the three years cuts both ways. But get the taxes done, and we won’t have any problems.
The deadline to file is April 15, 2024.