How to prepare for tax season 2022

The year 2022 is ending, and filing taxes will be at the top of your “to-do” list as 2023 rolls around.

Tax preparation is never fun. It can be "taxing" to sort through your annual finances and figure out how much you owe in taxes.

We here at TaxesForExpats came up with this detailed post to help you prepare for tax season 2022. Keep reading to find out how to avoid getting in trouble with the IRS.

When are taxes due?

Most people base their tax filings on the calendar year. For 2023, the tax day falls on Tuesday, April 18, 2023.

Now, while the 15th of April is traditionally Tax Day, in 2023, that day is a Saturday. The following Monday is Emancipation Day, a holiday in Washington, D.C. That's why tax day falls on April 18, 2023.

The Internal Revenue Service (IRS) begins receiving tax returns in late January. This is to give taxpayers enough time to get their documents in order and file taxes on time. But do you need anything specific to file your taxes in 2023?

Well, here is what you need to know about the changes and everything else before you begin filing your taxes.

For taxpayers who cannot pay in full

If you're unable to pay your full tax bill by April 18th, there's no need to wait for a tax bill to arrive before setting up a payment plan. You can simply apply for a payment plan on the IRS website at IRS.gov/paymentplan. These payment plans can be either short-term or long-term.

• A short-term payment plan typically has a payment period of 180 days or less and applies when the total amount owed is less than $100,000 in combined tax, penalties, and interest
• A long-term payment plan, on the other hand, is for a payment period that exceeds 180 days. This plan is paid in monthly installments and applies when the total amount owed is less than $50,000 in combined tax, penalties, and interest.

What info do I need when filing my taxes?

The IRS encourages taxpayers to complete a few basic tasks by the end of the year. The goal is to streamline the tax-filing process.

This helps taxpayers to face the forthcoming tax season confidently. All it needs is a little forethought, an overview of tax changes, and the use of helpful web tools.

1. Gather your tax records

Having a complete set of supporting documents at hand is essential. It helps you avoid any unpleasant surprises from the IRS. Consider whether your 2022 financial dealings are taxable and how to report them.

A proper recordkeeping system to keep tax data in one place is also a must-have. NOTE! You should keep copies of tax returns and supporting documents for at least three years.

Taxpayers must ensure timely receipt of year-end financial statements. You can do that by having the correct mailing address and email address. Ensure your employer, bank, and other payers have the correct addresses. You can expect to see year-end forms posted online or in the mail midway through February.

NB! Also, you must check each income statement for accuracy before submitting it to the IRS.

2. Mind the updates to minimum filing requirements

The federal government will decide whether you need to file a tax. Your age, filing status, disability, and income will play a key role when it comes to filing taxes.

Generally, you are exempt from filing a federal tax return if your income is below a particular amount. The amount is different for people of different ages and marital statuses. You can check out this chart for more information on the minimum taxable income levels for several categories.

Filing a return is optional if your income is less than the thresholds given for your age and marital status. You may also want to check this resource by the IRS to determine whether you need to file taxes or not.

3. Study the updates to FEIE

You may be able to enjoy some benefits if you meet certain requirements. These benefits include:

• foreign-earned income exclusion,
• foreign housing deduction, or
• foreign housing exclusion.

But, you must have the foreign income to qualify for these benefits. Also, your tax home should be in a foreign country.

But that's not all! The IRS has some other requirements, which you can check here. Enjoying these benefits means staying updated with other changes introduced by the IRS.

You may also want to consider the latest update in this regard if you are a sole proprietor or a US person owning rental properties outside the US. The update is the change in the title of Form 8858.

The new title reflects the fact that Foreign Branches (FB) are now included as a separate business type required to submit Form 8858. A Foreign Branch is a division of a US company that engages in business with a separate record and books.

Simply said, this means that under the new rules, all US sole proprietors and owners of rental properties must file Form 8858. NOTE! Failure to do so would mean a $10000 penalty.

When it comes to FEIE, the latest update is the change in Form 7203.

Mind the new IRS rules!

Another important part is that you should stay updated with the new IRS rules. The American Rescue Plan Act of 2021 has changed much:

• The reporting threshold for third-party payment processing networks has been lowered.
• Before 2022, 1099-K was only issued if you had more than 200 transactions for the year and the amount was more than $20,000. That’s changed now. Now, a single transaction exceeding $600 can lead to 1099-K being issued.
• Money received from friends and family as gifts or compensations for personal expenses through third-party payment processing networks is not taxable.
• If you did not earn any income and still received a 1099-K, you should call the issuer. The IRS will not correct it.

Renew expiring tax ID Numbers

A taxpayer must ensure that their tax ID is not expired before submitting an income tax return for the year 2022. The IRS issues Individual Taxpayer Identification Numbers (ITINs) for filing taxes. They are also issued to foreign nationals who cannot apply for Social Security numbers. This is to help them with tax returns and payments.

Remember, the only reason the federal government issues ITINs is for tax purposes. You must submit Form W-7, Application for IRS ITIN Number, to renew your tax ID.

NOTE! If you fail to renew your ITIN by the deadline, you may not be eligible for certain tax benefits. This can also lead to delayed refunds. Applying now can help you escape the hassle of the 2023 application rush.

What are important tax dates & deadlines?

When it comes to filing taxes, remembering the dates and deadlines is as important as filing. Here are some important dates and deadlines for tax season 2022.

For individual filers

Workers, retirees, self-employed individuals, freelancers, and independent contractors are all part of "Individual Filers."

January 16, 2023 - 4th Quarter 2022 Payment of estimated taxes

The last quarterly estimated tax payment for the 2022 tax year is due on this date if you are self-employed or receive other income that is not subject to tax withholding.

January 2023 - Tax season begins

It is the first day that tax returns for the year 2022 will be accepted and processed by the IRS.

January 31, 2023 - Due date when employers must send W-2 forms

To help you file your taxes on time, the IRS mandates that your employer provide you with a Form W-2 by January 31 of the year after the tax year ends.

January 31, 2023 - Certain 1099 forms are sent

Forms 1099-NEC, 1099-MISC, and 1099-K are used for payments that typically do not come from employers. You will use these forms if you are a gig worker, an independent contractor, a self-employed person or if you receive income from sources other than employment.

If January 31 is not a business day because it falls on a weekend or holiday, the forms should be submitted the next business day.

February 15, 2023 – Claim an exemption from withholding

You must submit a new Form W-4 by this date if you previously opted to claim an exemption from having taxes withheld from your paycheck by your employer.

April 18, 2023 – Tax day

Each year, the tax filing deadline is normally April 15. However, if that day comes on a weekend or a holiday, it may be extended. NOTE! Penalties and interest may apply if the tax deadline is missed.

April 18, 2023 – Deadline to request extension

If you need more time to complete your personal income tax return, you must file Form 4868 by the tax deadline.

Please, file an extension request if you won't be able to finish your tax return by tax day. This will allow you to submit your return in its entirety as late as October 16, 2023.

NB! Remember, that the April deadline for paying any taxes you owe still applies, even if you file for an extension.

For businesses

The businesses include partnerships (including LLCs), S Corps (Form 1120s), and C Corps (Form 1120).

• January 16, 2023 – 4th Quarter 2022 Payment of estimated taxes
• January 2023 – 2022 Beginning of tax season 2022
• January 31, 2023 - Due date when employers must send W-2 forms
• January 31, 2023 – Due date to send required 1099 forms
• March 15, 2023 – Some businesses must pay taxes (partnerships, S-Corporations, and multi-member LLCs)
• April 18, 2023 – Taxes due for C-Corps
• September 15, 2023 - Deadline for S-corporation and extended partnership returns
• October 16, 2023 - Extended C-corporation returns due date
• January 15, 2024 – Due date for fourth quarter 2023 estimated taxes

ALSO.  You would have read the term “thresholds” in the paragraphs above. But what does that mean?

The term "threshold" refers to the amount of money or income over which an individual or corporation is subject to taxation.

Why is this important? It is important because if you reach the tax threshold, that means you must pay taxes and so must be familiar with the tax dates and deadlines.

What are the penalties for filing taxes late?

If you are late with your tax return, you will be subject to severe fines. These include:

Interest

If you don't pay your taxes by the deadline, the Internal Revenue Service will add interest to the total. Even if you have a filing extension, you still need to do this. Penalty interest begins accruing on the tax return deadline (including extensions).

Late filing penalty

After the deadline, a late filing penalty of 5% of the tax payable applies for each full or partial month that the tax is not paid, up to a maximum of 25%. There is a 25% cap on the total tax penalty.

For returns overdue by more than 60 days, the minimum penalty is $435, or the lesser of the tax you owe and the penalty. NOTE! If you can provide a good justification, you might be able to avoid paying this fine.

Late payment of tax

The standard late payment penalty for taxes is .5% of the total tax due for each month (or a fraction thereof) when payment is late. Up to 25% of the amount owed may be subject to the penalty. This rule applies to any tax liability reported on the return that was not paid in full. This fee is in addition to any interest that may be assessed for the delay in payment.

You may wonder whether you can go to jail for not filing your taxes…

NB! Not filing your taxes will usually result in a fine but not jail time. On the other hand, you risk jail time if you are convicted of tax evasion or failure to submit all of your income to the IRS.

When can I expect my tax return?

The time it takes to file your tax return for the tax season 2022 can be less than 30 minutes, but many wonder how long it takes for a tax refund.

According to the IRS, it takes less than 21 days to process most returns.

If you applied for the Earned Income Tax Credit (EITC) or Additional Child Tax Credit, your tax refund might take longer to process (ACTC).

Even filing earlier won't speed up payment for those who qualify for these credits. That is because the IRS doesn't publish refunds for these credits until mid-March. NOTE! How you select to get your return will also affect how quickly you receive it.

It takes less time to choose direct deposit than to have a check mailed to you. Still, the IRS advises taxpayers that during tax season, your financial institution can take a few days to post the deposit.

Also note (FYI)

The IRS appreciates your patience if you are one of those still waiting for a confirmation about the processing of your tax return from last year. This also applies to those waiting for a refund or stimulus payment.

The IRS still has 3.7 million unprocessed individual returns from this year as of November 11, 2022. Returns for preceding years, such as 2021 that were filed late are also included.

There are still 2.7 million tax returns that need to be processed. 1.7 million of these are paper forms that have either been misfiled or require further special attention.

In addition, there were also 900,000 Forms 1040-X amended tax returns that have not yet been processed. NOTE! Currently, the IRS can take around 20 weeks to process these forms based on the sequence in which they were received.

Taxpayers should keep checking Where's My Amended Return for the latest processing status.

Bonus - changes to individual credits & deductions for tax year 2023

First up, the good news: you may still qualify for the Premium Tax Credit, which is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this credit, you'll need to meet certain requirements and file a tax return with Form 8962, Premium Tax Credit.

Now for the not-so-good news: the Child Tax Credit, the Earned Income Tax Credit, and the Child and Dependent Care Credit have all reverted to pre-COVID levels. This means that taxpayers will likely receive a significantly smaller refund compared to last year.

For 2022, the Child Tax Credit is worth $2,000 for each qualifying child. A child must be under age 17 at the end of 2022 to be a qualifying child. If you're eligible for the Earned Income Tax Credit and have no children, you may receive $560 for the 2022 tax year. And for the Child and Dependent Care Credit, taxpayers may receive up to 35% of their employment-related expenses for 2022.

Finally, a reminder for those who don't itemize and take the standard deduction: unfortunately, you won't be able to deduct your charitable contributions this year. But hey, on the bright side, at least you won't have to keep track of all those receipts!