Many Americans, received smaller tax refunds than expected this year. However, with some careful planning, they can avoid this surprise in the upcoming tax year.
As of May 5, the IRS reported an average tax refund amount of $2,803, which is more than a 7% drop from the previous year’s average of $3,025. This decrease is due to changes made by the IRS that eliminated pandemic-era tax credits, resulting in reduced advance payments for many individuals.
These affected credits include the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.
Mark Steber, Chief Tax Information Officer at Jackson Hewitt, pointed out that many Americans experienced reduced tax refunds during the recent tax season, with some owing more compared to the previous year. Steber emphasized the importance of taking immediate action to make necessary adjustments to avoid similar outcomes next Tax Day.
Steber stressed that taxpayers have more control over their tax returns than they may realize. Being proactive in managing your financial situation and adapting to life changes can help avoid unexpected refund reductions and better manage expectations during tax season.
If you received a smaller refund this tax season and are struggling with debt, consider consolidating it with a personal loan. Credible can assist you in finding a personalized interest rate without affecting your credit score.
Mid-Year Review Can Increase Your Potential for a Higher Tax Refund
To avoid any tax-related surprises next year, Americans should carefully review their past tax returns and assess their income by mid-2023. This evaluation provides a clearer understanding of their financial status.
Additionally, it’s essential to promptly note significant life changes, such as changes in dependents, employment status, income, and marital status, as these factors can affect tax liability, as highlighted by Jackson Hewitt.
Conducting a mid-year financial assessment allows individuals to estimate potential tax refunds or amounts owed for the upcoming tax season. It’s also an opportune moment to implement adjustments, such as modifying tax withholdings, increasing retirement contributions, and adopting recommended strategies from Jackson Hewitt.
Self-employed individuals should stay informed about evolving tax regulations concerning third-party payment apps like Venmo, Zelle, and PayPal for business transactions, as advised by Jackson Hewitt.
Starting in 2023, small business owners and individuals with side jobs will receive a 1099-K form for earnings exceeding $600 through payment services like PayPal and Venmo, a change from the previous $20,000 threshold.
Mark Steber noted that recent tax seasons have seen significant changes. While the pandemic introduced stimulus payments and expanded tax credits, the latest tax season resembled the pre-2020 filing experience.
Expecting a tax season, similar to previous years, Steber emphasized scheduling a mid-year meeting with a tax professional. This proactive step helps individuals gain better financial clarity and prepare for potential changes throughout the year.
For those aiming to reduce expenses amid rising inflation, utilizing a personal loan to pay off high-interest debt can lead to monthly savings. Credible can assist in determining a personalized interest rate without impacting credit scores.
IRS plans to go paperless by the year 2025
This move aims to reduce the reliance on paper-filed tax returns and enhance efficiency.
Furthermore, the IRS intends to introduce additional non-tax forms in user-friendly digital formats that can be accessed via mobile devices. These enhancements are designed to simplify the process for taxpayers and expedite the refund process.
Additionally, the IRS is actively developing a direct filing program, allowing taxpayers to electronically submit their tax returns directly to the IRS, bypassing the need for third-party software like TurboTax.
Eric Bronnenkant, Head of Tax at Betterment, emphasized the importance of minimizing paper-filed tax returns. He noted that there are still many situations where taxpayers resort to paper filing because they need to attach supporting documents to their returns. Enabling the attachment of these required documents would save significant time and alleviate frustrations associated with postal services.
It’s important to note that some Americans use their tax refunds to pay down credit card debt. If you expect a smaller refund in 2024 and are looking for ways to manage high-interest debt, you can consider using a personal loan. Credible can help you find your personalized interest rate and provide expert guidance without affecting your credit score.
Conclusion
Many Americans received smaller tax refunds this year due to changes by the IRS, including the elimination of pandemic-era tax credits. To avoid future surprises, proactive planning is essential. A mid-year financial review, prompt acknowledgment of life changes, and staying informed about tax updates are crucial.
The IRS’s move toward paperless filing by 2025 aims to streamline the process. Utilizing personal loans can help manage debt amid rising inflation. Credible offers assistance without impacting credit scores.
