Claiming a dependent on your tax return can unlock several significant tax benefits. When the requirements are met, a qualifying child may allow the taxpayer to file as Head of Household instead of Single and claim credits such as the Child Tax Credit, Additional Child Tax Credit, Other Dependent Credit, and the Child & Dependent Care Credit. These benefits can significantly reduce tax liability—but only if the IRS rules are precisely followed.

When parents live in separate households, one of the most common—and confusing—tax questions is:

“Who gets to claim our child as a dependent?”

The IRS has particular rules that determine who qualifies, what each parent is allowed to claim, and what forms must be completed. This guide breaks down the exact order of operations the IRS uses and explains everything custodial and non‑custodial parents need to know.

Step 1: Does the Child Meet the IRS Requirements?

Before deciding which parent can claim the child, the IRS requires the child to meet the rules for a Qualifying Child:

✔ Relationship

The child must be your son, daughter, stepchild, foster child, or their descendant.

✔ Age

Under age 19 (or under 24 if a full‑time student). Any age if permanently disabled.

✔ Residency

The child must live with the parent(s) more than half the year.

✔ Support

The childcannot provide more than half of their own support.

✔ Joint Return

The child cannot file a joint return with a spouse unless it’s only to claim a refund.

If these tests are met, move to Step 2.

Step 2: Determine the “Custodial Parent”

The IRS has a stringent definition:

The custodial parent is the parent the child lived with for the most nights during the year.

It does not matter what:

• Your divorce decree says
• Your parenting plan says
• Your court order says
• You “agreed verbally.”

The IRS cares only about overnights.

If nights are exactly 50/50, the custodial parent becomes theparent with the higher Adjusted Gross Income (AGI).

Step 3: The Custodial Parent Automatically Gets All Tax Benefits

Unless a special IRS form is completed (we’ll get to that next), the custodial parent receives:

✔ Dependency Claim

✔ Child Tax Credit (CTC)

✔ Head of Household status

✔ Earned Income Credit (EIC)

✔ Child & Dependent Care Credit

✔ Premium Tax Credit (household size)

✔ Any tax benefit tied to where the child lived

These do not transfer automatically to the other parent.

Step 4: When the Non‑Custodial Parent Can Claim the Child

A non‑custodial parent may claim the dependency and Child Tax Credit ONLY if:

The custodial parent signs IRS Form 8332

This is the release of claim form.

The non‑custodial parent must attach the signed Form 8332 to their tax return every single year they claim the child (unless the form specifically releases multiple years).

Court orders are NOT enough.

The IRS will reject the non‑custodial parent’s claim if:

• The decree says “Parent B gets the child every other year.”
• But Form 8332 was never signed

The IRS will always side with the custodial parent if the form is missing.

Step 5: What the Non‑Custodial Parent Can NEVER Claim

Even with Form 8332, the non‑custodial parent cannot claim:

• Head of Household
• Earned Income Credit (EIC)
• Child & Dependent Care Credit
• Premium Tax Credit (household size)
• Any benefit requiring the child to live with you

These belong only to the custodial parent.

Step 6: What Happens if Both Parents Claim the Child?

When both parents file claiming the child, the IRS applies tie-breaker rules:

• Custodial parent wins
• If overnights were equal → the parent with the higher AGI wins
• If neither parent qualifies → another eligible taxpayer with the highest AGI wins (rare)

The IRS will adjust or deny one of the returns.

Simple Summary for Parents

Here’s the easiest way to understand it:

• The parent with more overnights is the custodial parent.
• The custodial parent gets all tax benefits by default.
• The non‑custodial parent gets nothing unless Form 8332 is signed.
• Even with Form 8332, the non‑custodial parent only gets the dependency and Child Tax Credit.
• Court orders do NOT override IRS rules.

Documentation

The IRS defines residency as a place where the dependent lives more than 50% of the time. The documentation should show the primary/custodial parents’ address:

For custodial parents

• Rental lease and statement from property manager, or mortgage statement
• Records for school or daycare
• Government benefits and legal matters
• Medical records

For non-custodial parents

• Must get Form 8332 signed by the custodial parent releasing the dependent to the non-custodial parent.
• Divorce decree or separation agreement.

The IRS defines Support as amounts spent to provide:

• Food,
• Lodging,
• Clothing,
• Education,
• Medical and dental care,
• Recreation,
• Transportation, and
• Similar necessities.

Where to find this information:

Publication 501, Dependents, Standard Deduction, and Filing Information.

Beginning December 24, 2025, the United States Postal Service (USPS) implemented a major clarification to its postmarking procedures—one that can directly affect whether a paper‑filed tax return is considered timely.

If you or your clients still mail returns, extensions, or payments, this rule change is critical to understand.

What Exactly Changed?

Under the new USPS rule, the postmark date no longer reflects the day you dropped your mail at the post office or into a collection box.
Instead, it now reflects the date the envelope is first processed by an automated USPS sorting machine, which may be:

• Later that night
• The next day
• Or even several days later, depending on routing delays

This means a tax return placed in a collection box at 6 PM on April 15 may not be considered mailed on time if USPS doesn’t process it until April 16 or later. And the IRS relies strictly on the postmark date under IRC §7502.

Why This Matters for Paper‑Filed Tax Returns

The IRS considers a return “timely filed” if:

• It is properly addressed
• Has sufficient postage
• And is postmarked by the deadline

Under the new USPS system, the date you physically mailed the envelope may not be the date that appears on the postmark—creating the risk of:

• Late filing penalties
• Interest charges
• Rejected elections
• Disallowed credits that require timely filing

Taxpayers who try to “beat the deadline” by dropping something at the post office at the last minute could be caught off guard.

How to Protect Yourself and Your Clients

Here are the safest, IRS‑approved alternatives to ensure accurate proof of mailing:

1. Go to the USPS retail counter for a manual postmark

Ask for a hand‑stamped (round‑date) postmark, or purchase postage at the counter for a PVI (Postage Validation Imprint).
This is the only way to guarantee the date reflects when the item was actually accepted.

2. Use Certified or Registered Mail

These methods provide a stamped receipt with the official mailing date, which the IRS recognizes even if the machine‑applied postmark is later.

3. Use an IRS‑approved Private Delivery Service (PDS)

FedEx, UPS, and DHL have certain service levels that the IRS treats similarly to postmarks.
The carrier’s acceptance timestamp becomes the “postmark.”

4. Mail early

Even 24–48 hours of buffer time dramatically reduces risk under the new system.

Final Thoughts for Tax Professionals

This change doesn’t alter IRS rules—only how USPS applies postmarks. But the effect is real:

• The postmark date is no longer guaranteed to reflect the mailing date.
• Mailing at the last minute is no longer safe.
• Tax professionals should strongly encourage clients to use Certified Mail or PDS options.

As a tax pro, updating your organizers, checklists, and client instructions is now essential to prevent avoidable penalties.

Reference

Legal Information Institute. (n.d.). 26 U.S. Code § 7502 – timely mailing treated as timely filing and paying. Legal Information Institute. https://www.law.cornell.edu/uscode/text/26/7502

If you plan to collect Social Security while you’re still working, it’s essential to understand how your earnings can affect your monthly benefit. The Social Security Administration uses something called the Earnings Test to determine whether part of your benefit should be temporarily withheld. This isn’t a penalty—and you don’t lose these benefits forever. Here’s a simple breakdown to help you make informed retirement decisions.

What Is the Social Security Earnings Test?

If you start claiming Social Security before your full retirement age (FRA) and continue working, Social Security limits how much you can earn before your benefits are reduced. This rule goes away once you reach full retirement age.

1. At Full Retirement Age or Older: No Earnings Limit

Once you reach your FRA, you can earn any amount from employment without reducing your Social Security benefits.

2. If You’re Under Full Retirement Age

For 2026:

• You can earn up to $23,400 without affecting your benefit.
• If you earn over $23,400, the SSA withholds $1 for every $2 you earn above the limit.

Example:

If you earn $33,400 while receiving benefits, you are $10,000 over the limit.
Social Security will withhold $5,000 from your benefits for the year.

3. The Year You Reach Full Retirement Age

The limit increases significantly:

• You may earn up to $62,160 without any reduction.
• Above that, Social Security withholds $1 for every $3 you earn.
• This reduction only applies to the months before you reach FRA.

4. What Is My Full Retirement Age?

Your FRA is based on your birth year:

• Born 1943–1954: Age 66
• Born 1955–1959: FRA increases by 2 months each year
• Born 1960 or later: Age 67

Do You Lose These Benefits Forever?

No. Any benefits withheld because of the Earnings Test are added back to your monthly payments once you reach FRA. At that point, your Social Security check will increase permanently.

National Taxpayer Advocate delivers Annual Report to Congress; finds taxpayer service was strong in 2025 but foresees challenges for taxpayers who encounter problems in 2026. An overview is below, but read the full post for more information on the impact of tax law changes, balancing telephone service and case processing, and IRS plans to outsource the processing of paper-filed tax returns. Additionally, the report emphasizes the 10 most serious taxpayer problems.

IR-2026-15, Jan. 28, 2026

WASHINGTON — National Taxpayer Advocate Erin M. Collins today released her 2025 Annual Report to Congress, finding that taxpayers generally fared well in their dealings with the IRS in 2025 and that most taxpayers are likely to have a smooth experience in 2026. However, the report cautions that the upcoming filing season is expected to present greater challenges for taxpayers who encounter problems.

“Among the reasons the 2025 filing season went well was that the IRS had its largest workforce in many years and faced no major tax law changes that required implementation during the filing season,” Collins writes. “Entering 2026, the landscape is markedly different. The IRS is simultaneously confronting a reduction of 27% of its workforce, leadership turnover, and the implementation of extensive and complex tax law changes mandated by the [One, Big, Beautiful Bill] Act, many of which apply retroactively and require significant IRS programming, guidance, changes to tax forms and instructions, and taxpayer education.”

Despite these challenges, Collins says most taxpayers will be able to file their returns and receive their refunds without delay. “For the significant majority of taxpayers who file their returns electronically, who include their direct deposit information, and whose returns are not stopped by IRS processing filters, the process will be seamless,” she writes. “Their returns will be processed quickly, and if they are due a refund, they will receive it without delay.” However, she notes, “the success of the filing season will be defined by how well the IRS is able to assist the millions of taxpayers who experience problems.”

Taxpayer service in 2025

During 2025, the IRS processed more than 165 million individual income tax returns. About 94% were submitted electronically, and 6% (about 11 million) were paper-filed. Approximately 104 million taxpayers (63%) received refunds, with an average refund amount of $3,167. While most refunds were issued timely, about 3.6 million taxpayers received their refunds beyond the IRS’s normal processing time, with average wait times of 7 weeks for e-filers and 14 weeks for paper filers.

In addition, longstanding delays in resolving identity theft victim assistance cases persisted during 2025, with hundreds of thousands of taxpayers waiting an average of more than 21 months for the IRS to resolve their cases and issue refunds due. Particularly for lower-income taxpayers, these delays can create or exacerbate financial hardships. Collins has previously called these delays “unconscionable,” and her report reiterates a prior recommendation to keep IDTVA employees focused exclusively on identity theft casework until the average case resolution time is reduced to 90 days.

2026 filing season challenges

The report says the combination of staffing reductions and significant retroactive changes in the tax law has created challenges for taxpayers and the IRS alike. It also examines the challenges the IRS will face in balancing telephone service with case processing, as well as the potential risks of outsourcing the processing of millions of paper-filed tax returns.

It goes on to state that, for taxpayer service, customer service representatives who answer telephone calls and process taxpayer correspondence and casework are particularly important. The IRS generally receives over 100 million telephone calls and several million pieces of taxpayer correspondence each year. In 2025, the number of CSRs was reduced by 22%. Although the IRS backfilled some of these positions late in the year, the number of CSRs remains substantially lower than last filing season, and the new hires have less experience than the employees who departed. “To fulfill its mission, the IRS must align hiring decisions with operational needs and emerging challenges, rather than target a predetermined staffing level,” Collins writes. “Workforce planning should be guided by the work necessary to provide timely, accurate service to taxpayers and to protect taxpayer rights, as well as by the most effective ways to deliver those outcomes.

The Internal Revenue Service (IRS) will begin accepting and processing income tax returns on Monday, Jan. 26, 2026, for the 2026 tax filing season. This is when taxpayers can start filing their 2025 federal tax returns. The IRS provided the following information, including simple steps to prepare for filing:

Tax Tip 2026-03: Next steps to Get Ready for 2026 tax filing season

Create or access their IRS Individual Online Account.
IRS Individual Online Accounts are available 24/7 to view account information, make payments, manage communication preferences, and protect tax information.

Gather and organize records.
Organized tax records make it easier to prepare complete and accurate tax returns. Some examples of tax records can include:

• Forms W-2 from your employer(s)
• Forms 1099 from banks, issuing agencies, and other payers, including unemployment compensation, dividends, pension, annuity, or retirement plan distributions
• Form 1099-K, 1099-MISC, or other income statement if you worked in the gig economy
• Form 1099-INT if you were paid interest
• Other income documents and records of digital asset transactions

Review the new 2025 tax law changes
The One, Big, Beautiful Bill has brought many changes, including new deductions and credits that may reduce tax bills or increase refunds. Beginning in 2025, to be eligible to claim certain credits for other dependents, the taxpayer and their spouse, if filing jointly, must have valid Social Security numbers or Individual Taxpayer Identification Numbers issued on or before the due date of their returns (including extensions).

Understand reporting documents and requirements.
Income from part-time work, gig work, or the sale of goods and services is generally taxable. Form 1099-K, Payment Card and Third-Party Network Transactions, will be issued by payment card companies for any amount, and by payment apps or online marketplaces (also called third-party settlement organizations, or TPSOs) when payments to a payee exceed $20,000 and more than 200 transactions occur in a year.

Additionally, taxpayers who bought, sold, or received digital assets, including cryptocurrency, stablecoins, or NFTs, may be required to report those transactions. Some taxpayers may receive Form 1099-DA from brokers. Whether you receive a Form 1099-DA or not, all taxpayers must answer the digital asset question on Form 1040 and report any related income, gains, or losses.

Check the status of the individual tax identification number ITIN
An ITIN must be renewed only if it has expired and is required on a U.S. federal tax return. If a taxpayer’s ITIN wasn’t included on a U.S. federal tax return at least once for tax years 2022, 2023, and 2024, it would have expired on Dec. 31, 2025, and will need to be renewed.

Use direct deposit
The IRS is phasing out paper tax refund checks under the executive order Modernizing Payments To and From America’s Bank Accounts. The IRS encourages taxpayers without a bank account to open one so they can receive refunds by direct deposit.

When filing your taxes, you have two main methods to deduct car or truck expenses for business use: the standard mileage rate and the actual expense method.

1. Standard Mileage Rate: This method allows you to deduct a fixed amount per business mile driven. It simplifies the process as you don’t need to track individual expenses like fuel, maintenance, or depreciation, although it is recommended to track both the mileage and the actual costs yearly.
2. Actual Expense Method: This method involves deducting the actual costs of operating the vehicle for business purposes. This includes fuel, maintenance, repairs, insurance, registration fees, and depreciation expenses. Using this method, you can write off auto depreciation as part of the overall vehicle expenses.

References

Internal Revenue Service. “Topic No. 510, Business Use of Car.” http://www.irs.gov/taxtopics/tc510.

Drake Software 2024 Desk Reference

Claiming a dependent on your tax return can unlock several significant tax benefits. When the requirements are met, a qualifying child may allow the taxpayer to file as Head of Household instead of Single and claim credits such as the Child Tax Credit, Additional Child Tax Credit, Other Dependent Credit, and the Child & Dependent Care Credit. These benefits can significantly reduce tax liability—but only if the IRS rules are precisely followed.

When parents live in separate households, one of the most common—and confusing—tax questions is:

“Who gets to claim our child as a dependent?”

The IRS has particular rules that determine who qualifies, what each parent is allowed to claim, and what forms must be completed. This guide breaks down the exact order of operations the IRS uses and explains everything custodial and non‑custodial parents need to know.

Step 1: Does the Child Meet the IRS Requirements?

Before deciding which parent can claim the child, the IRS requires the child to meet the rules for a Qualifying Child:

✔ Relationship

The child must be your son, daughter, stepchild, foster child, or their descendant.

✔ Age

Under age 19 (or under 24 if a full‑time student). Any age if permanently disabled.

✔ Residency

The child must live with the parent(s) more than half the year.

✔ Support

The child cannot provide more than half of their own support.

✔ Joint Return

The child cannot file a joint return with a spouse unless it’s only to claim a refund.

If these tests are met, move to Step 2.

Step 2: Determine the “Custodial Parent”

The IRS has a stringent definition:

The custodial parent is the parent the child lived with for the most nights during the year.

It does not matter what:

• Your divorce decree says
• Your parenting plan says
• Your court order says
• You “agreed verbally.”

The IRS cares only about overnights.

If nights are exactly 50/50, the custodial parent becomes the parent with the higher Adjusted Gross Income (AGI).

Step 3: The Custodial Parent Automatically Gets All Tax Benefits

Unless a special IRS form is completed (we’ll get to that next), the custodial parent receives:

✔ Dependency Claim

✔ Child Tax Credit (CTC)

✔ Head of Household status

✔ Earned Income Credit (EIC)

✔ Child & Dependent Care Credit

✔ Premium Tax Credit (household size)

✔ Any tax benefit tied to where the child lived

These do not transfer automatically to the other parent.

Step 4: When the Non‑Custodial Parent Can Claim the Child

A non‑custodial parent may claim the dependency and Child Tax Credit ONLY if:

The custodial parent signs IRS Form 8332

This is the release of claim form.

The non‑custodial parent must attach the signed Form 8332 to their tax return every single year they claim the child (unless the form specifically releases multiple years).

Court orders are NOT enough.

The IRS will reject the non‑custodial parent’s claim if:

• The decree says “Parent B gets the child every other year.”
• But Form 8332 was never signed

The IRS will always side with the custodial parent if the form is missing.

Step 5: What the Non‑Custodial Parent Can NEVER Claim

Even with Form 8332, the non‑custodial parent cannot claim:

• Head of Household
• Earned Income Credit (EIC)
• Child & Dependent Care Credit
• Premium Tax Credit (household size)
• Any benefit requiring the child to live with you

These belong only to the custodial parent.

Step 6: What Happens if Both Parents Claim the Child?

When both parents file claiming the child, the IRS applies tie-breaker rules:

• Custodial parent wins
• If overnights were equal → the parent with the higher AGI wins
• If neither parent qualifies → another eligible taxpayer with the highest AGI wins (rare)

The IRS will adjust or deny one of the returns.

Simple Summary for Parents

Here’s the easiest way to understand it:

• The parent with more overnights is the custodial parent.
• The custodial parent gets all tax benefits by default.
• The non‑custodial parent gets nothing unless Form 8332 is signed.
• Even with Form 8332, the non‑custodial parent only gets the dependency and Child Tax Credit.
• Court orders do NOT override IRS rules.

Documentation

The IRS defines residency as a place where the dependent lives more than 50% of the time. The documentation should show the primary/custodial parents’ address:

For custodial parents

• Rental lease and statement from property manager, or mortgage statement
• Records for school or daycare
• Government benefits and legal matters
• Medical records

For non-custodial parents

• Must get Form 8332 signed by the custodial parent releasing the dependent to the non-custodial parent.
• Divorce decree or separation agreement.

The IRS defines Support as amounts spent to provide:

• Food,
• Lodging,
• Clothing,
• Education,
• Medical and dental care,
• Recreation,
• Transportation, and
• Similar necessities.

Where to find this information:

Publication 501, Dependents, Standard Deduction, and Filing Information.

Conduct mid-year checkup to ensure that you are withholding the correct amount for the 2024 tax liability due by April 15, 2025. You may need to adjust your withholdings or plan on saving extra elsewhere for the remainder of the year. Your 2023 federal tax liability and withholdings for reference can be found on your 1040 tax return.

After December 31, 2024, gather and organize documents needed to prepare the 2024 tax returns like W2’s, 1099’s, 1098’s, Income Statement’s (self employed income and expenses), etc.

Get additional information from the Internal Revenue Service like account transcripts or current identity protection PINs at IRS Individual Online Account.

The new instructions are not out yet, so tax year 2023 information is still used), but get ready now to file 2024 federal income tax returns in 2025.

With the nation’s tax season right around the corner, the Internal Revenue Service reminds taxpayers there are important steps they can take now to help get ready to file their 2023 (or 2024) federal tax return.

Get ready to file your taxes | Internal Revenue Service (irs.gov)

Tip! on form 1099k

The $600 threshold for payment apps and online marketplaces to report payments on Form 1099-K is delayed for tax year 2023. The threshold for tax year 2023 will continue to be payments over $20,000 and 200 transactions, although taxpayers could still get forms reporting less than that amount. The IRS is planning a threshold of $5,000 for tax year 2024.

What’s taxable?

There’s no change to the taxability of income. All income, including from part-time work, side jobs or the sale of goods is still taxable. Taxpayers must report all income on their tax return unless it’s excluded by law, whether they receive a Form 1099-K, a Form 1099-NEC, Form 1099-MISC, or any other information return or not.

What’s not taxable?

You shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K next filing season, note those payments as “personal,” if you can.

Good recordkeeping is important and invaluable.

Be sure to keep good records because it helps you when it’s time to file your tax return. Don’t forget to keep track of expenses, what you’ve sold and what you’ve been paid for services throughout the year. And it’s a good idea to keep business and personal transactions separate to make it easier to figure out what you may owe.

Gather, organize and update tax records.

Organizing tax records makes it easier to prepare a complete and accurate tax return. It helps avoid errors that can slow down refunds and may also help find overlooked deductions or tax credits. Having a copy of last year’s return nearby can serve as a guide when getting ready to file.

Get helpful information to file through IRS Individual Online Account

Taxpayers should create an account at Your account | Internal Revenue Service (irs.gov) to review and receive helpful information about their individual income tax accounts.

What’s new?

-IRS Individual Online Account enhancements
Taxpayers and Individual Taxpayer Identification Number (ITIN) holders can now access their Individual Online Account and view, approve and electronically sign power of attorney and tax information authorizations from their tax professional.

-Form 1099-K reporting threshold delayed
The Form 1099-K third party reporting threshold for tax year 2023 will continue to be for payments over $20,000 and 200 transactions. After feedback from taxpayers, tax professionals, and payment processors, the IRS delayed the new $600 Form 1099-K reporting threshold for 2023.

-Understand energy related credits
Taxpayers who bought a vehicle in 2023 should review the changes under the Inflation Reduction Act of 2022 to see if they qualify for the credits for new electric vehicles purchased in 2022 or before or the new clean vehicles purchased in 2023 or after.

If taxpayers made energy improvements to their home, tax credits are available for a portion of qualifying expenses. 

The Internal Revenue Service will begin accepting and processing 2023 tax returns on Monday, January 29, 2024. The tax deadline to file for those who have balances due is on April 15, 2024. Folks who receive refunds technically have three years to file, so filing by the April deadline is more of a recommendation. Although the IRS will not officially begin accepting and processing tax returns until January 29, people do not need to wait until then to work on their taxes if they’re using software companies or tax professionals.

For example, most software companies accept and hold electronic submissions until the IRS is ready to begin processing.

The Colorado Department of Revenue (CDOR) announced that processing of state income tax filers will begin no later than February 10, 2023, and that people can still file their income tax returns through all methods except the state’s Revenue Online platform. Coloradans can use Revenue Online to file their state income taxes no later than February 22, 2023. 

Last November, Coloradans voted to lower the income tax rate to 4.4%, which, coupled with multiple legislative changes, created a much larger end-of-year programming workload for the Department, resulting in a slight delay.

The deadline is approaching if you applied for an automatic extension to file your 2022 tax returns. If there is or will be a balance due, then filing for an extension avoids the ‘failure to file’ penalty; however, the ‘failure to pay’ fine still applies. 90% of the expected balance due must be paid by the original due date in April to avoid such penalties. If you expect a refund, you have three years to file, and no application for an extension is necessary if you don’t file (but only if you expect a refund). The tax year 2020 must be filed by the October 2023 deadline to receive a refund, if there is one. Otherwise, it is forfeited.

Here are five things you should do to file your tax returns before the extension deadline: 

1. Gather all your necessary tax documents, such as W-2s, 1098s, 1099s, and Financial Statements for businesses. If you are not preparing and filing your tax returns, send all necessary information to the person who prepares your tax returns. As a preparer, I ask clients to keep receipts at home and only send totals to me.

2.   Determine which tax forms you must complete based on your income and deductions. A tax professional will guide you, but it’s extremely important that you understand the basics. You should understand the standard deduction, itemized deductions, and which deduction benefits you (not your neighbor, sibling, or friend) – your situation is different than anyone else’s.

3.   Double-check all your calculations and ensure you’ve filled out every section of the forms accurately. Your tax return preparer will or should send you a copy for review before e-filing. It is still your responsibility to ensure the correctness of the return, even if you hire a preparer to help with drafting and submitting the forms.

4.   Submit your tax returns. Typically, they will be e-filed regardless of whether you prepare them yourself or hire a tax return preparer or accountant.

5.   Keep a copy of your tax returns and all supporting documents for your records.

Taxes are an indefinite ongoing task, and it might be helpful to create a folder specifically for tax stuff where you can save documents and tax return copies year after year. Every year is separate, so create a new folder every year within your ‘tax’ folder.

Dealing with the Internal Revenue Service is a massive pain for everyone. For many reasons, a return may be delayed in processing or require additional information. There once was a time when everyone who filed electronically and had the refunds directly deposited received their refunds within 21 days. That is not so much the case anymore.

Over the last two or three years, identity theft has become a big issue, and the IRS and States are taking steps to minimize fraud. One way is by asking folks to verify their identity through the websites confirming information from the last two years’ tax return copies.

The main IRS phone number is 1-800-829-1040

The taxpayer protection hotline 1-800-830-5084

Go to http://www.irs.gov to set up IDme

Go to http://www.colorado.com/revenueonline to create an account for the CO state.

In some cases, it seems like the IRS (representative) disagrees with the 1040 pg2, line 28, refundable child tax credit. In 2021, the IRS gave out advanced payments of the CTC totaling half of what the credit would normally be at tax time. For example, if you have 2 dependents under age 6 and your credit is $7,200 then you would have received $3,600 during the year and $3,600 as a credit on your return. The advanced payments are reconciled on form 8812, and any remainder flows to line 28 of the 1040. Review form 8812 if line 28 is in question.

The IRS sends letters and notices of proposed changes. I encourage everyone to challenge those letters for accuracy.

Since the Tax Cuts and Jobs Act of 2017, employee withholdings have been tricky. The IRS would like folks to withhold only what their tax liability will be. This means that people, especially those who receive the child tax credit, will receive more on their paychecks during the year (withhold less taxes); although if you ask anyone they will not agree with that fact. The IRS is not meant to be your savings plan or safety net. It is a refund of an overpayment. We don’t voluntarily make extra payments to Netflix or Centurylink, and then ask for a refund at the end of the year (yes,we would like to). Learn what your tax liability is. It is listed on the 1040 that you file every year. My clients can review the Comparison Sheet for three years worth of tax liability. Then, review your paycheck stubs to make sure you are on course to cover the total liability by the end of the year.

Two points here,

• There is no longer the 1040EZ or 1040A. You may file a simple return, but it’s not the EZ or an easy – just for clarification. There is the 1040 and 1040-SR. For me, most returns are easy. I have been doing this for 16 years. I would encourage anyone who can accurately prepare their returns to do so. The IRS allows qualified returns with income under $75,000 to be prepared for free to low cost through their website at irs.gov.

• The taxes paid out of your paycheck are
  • Federal Income tax. The refund or balance due is based on this amount
  • Social Security tax (Federal Insurance Contributions Act). This goes towards social security, you may start withdrawing around age 65. You don’t get a refund from this amount at tax time.
  • Medicare tax (Federal Insurance Contributions Act). This goes towards the medicare program. You don’t get a refund from this amount at tax time.
  • State income tax. The refund or balance due is based on this amount.

https://www.irs.gov/individuals/tax-withholding-estimator

IRS- Use this tool to estimate the federal income tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay or tax due.

https://www.irs.gov/newsroom/tax-withholding-how-to-get-it-right

IRS- The federal income tax is a pay-as-you-go tax. Taxpayers pay the tax as they earn or receive income during the year. Taxpayers can avoid a surprise at tax time by checking their withholding amount. The IRS urges everyone to do a Paycheck Checkup in 2019, even if they did one in 2018. This includes anyone who receives a pension or annuity. Here’s what to know about withholding and why checking it is essential.

Understand tax withholding

An employer generally withholds income tax from their employee’s paycheck and pays it to the IRS on their behalf. Wages paid, along with any amounts withheld, are reflected on the Form W-2, Wage and Tax Statement, the employee receives at the end of the year.

How withholding is determined

The amount withheld depends on:

• The amount of income earned and
• Three types of information an employee gives to their employer on Form W–4, Employee’s Withholding Allowance Certificate:
  • Filing status: Either the single rate or the lower married rate.
  • Number of withholding allowances claimed: Each allowance claimed reduces the amount withheld.
  • Additional withholding: An employee can request an additional amount to be withheld from each paycheck.

Note: Employees must specify a filing status and their number of withholding allowances on Form W–4. They cannot specify only a dollar amount of withholding.

Everyone should check withholding

The IRS recommends that everyone do a Paycheck Checkup in 2019. Though especially important for anyone with a 2018 tax bill, it’s also important for anyone whose refund is larger or smaller than expected. By changing withholding now, taxpayers can get the refund they want next year. For those who owe, boosting tax withholding in 2019 is the best way to head off a tax bill next year. In addition, taxpayers should always check their withholding when a major life event occurs or when their income changes.

When to check withholding:

• Early in the year
• If the tax law changes
• When life changes occur:
  • Lifestyle – Marriage, divorce, birth or adoption of a child, home purchase, retirement, filing chapter 11 bankruptcy
  • Wage income – The taxpayer or their spouse starts or stops working or starts or stops a second job
  • Taxable income not subject to withholding – Interest, dividends, capital gains, self-employment and gig economy income and IRA (including certain Roth IRA) distributions
  • Itemized deductions or tax credits – Medical expenses, taxes, interest expense, gifts to charity, dependent care expenses, education credit, Child Tax Credit, Earned Income Tax Credit

How to check withholding

• Use the Tax Withholding Estimator on IRS.gov.
  The Tax Withholding Estimator works for most employees by helping them determine whether they need to give their employer a new Form W-4. They can use their results from the estimator to help fill out the form and adjust their income tax withholding. If they receive pension income, they can use the results from the estimator to complete a Form W-4P, Withholding Certificate for Pension and Annuity PaymentsPDF, and give it to their payer.
   
• Use the instructions in Publication 505, Tax Withholding and Estimated Tax.
  Taxpayers with more complex situations may need to use Publication 505 instead of the Tax Withholding Estimator. This includes employees who owe, the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. The publication includes worksheets and examples to guide taxpayers through these special situations.

Change withholding

To change their tax withholding, employees can use the results from the Tax Withholding Estimator to determine if they should complete a new Form W-4 and submit to their employer. Don’t file with the IRS.

Those who don’t pay taxes through withholding, or don’t pay enough tax that way, may still use the Tax Withholding Estimator to determine if they have to pay estimated tax quarterly during the year to the IRS.  Those who are self-employed generally pay tax this way. See Form 1040-ES, Estimated Taxes for Individuals, for details.

More resources

• Pay as You Go, So You Won’t Owe
• Estimated Taxes
• Form W-4S, Request for Federal Income Tax Withholding from Sick Pay
• Form W-4V, Voluntary Withholding Request

Although tax returns are prepared remotely, we accept documents through U.S. mail or by drop-off, however, the preferred method is to upload documents to the portal or email them directly to Stephanie. The new office is a shared space again, Office Evolution. The suite is located on the 5th floor of the Metro North building at 11990 Grant St., Suite 550 Northglenn, CO 80233. The new phone number is (303) 381-3014 ext 101

When dropping off documents, please make sure that they are enclosed in an envelope that can be sealed.

Mailing Address: 11990 Grant St., Suite 550

Northglenn, CO 80233

Phone number: (303) 381-3014 ext 101

e-mail: stephanie@paulinestaxservices.com

Portal: https://ptsdocs.securefilepro.com/portal/#/login

As a reminder, the 1040EZ and 1040A were removed. There is no “easy” form when filing tax returns. Individuals either file the 1040 or the 1040SR. Other forms or schedules may need to be attached to the 1040, like the Schedule C – Profit or Loss from Business. You are essentially considered self-employed if you receive a 1099-Misc or 1099-NEC for non-employee contributions and should include the Schedule C on your returns.

Many of the extended or given credits received over the last couple of years due to the pandemic have expired. We will be reverting to the pre-pandemic situation. IRS changes, e-file changes, and new or updated forms and schedules have been released. Here are a few of the significant changes.

Due to the expiration of American Rescue Plan Act of 2021 (ARPA) (P.L. 117-2)

For the 2022 1040, Lines 12b and 12c were removed, as the election to claim a charitable contribution for taxpayers who do not itemize deductions has expired. The tax law changes of 2017. The Tax Cuts and Jobs Act, drastically affected who could use their mortgage interest, and real estate taxes, among other items on the Schedule A (Itemized Deductions) or who must use the standard deduction that the government gives to everyone. For example, unreimbursed employee business expenses for most folks were eliminated. If you work for an employer and receive a W2 at the end of the year, you can no longer write off parking, mileage, or office use of your home. The TCJA increased the standard deduction, so the overall threshold to itemize increased. However, donating to church or Goodwill was still allowed on a separate line. That will be changing this year too. Charitable Contributions are included on the Schedule A so if you do not itemize, you cannot use those.

Line 27c was removed, as the election to use prior-year earned income to figure EIC has expired. The childless EIC age range (25-65) has been reinstated. Additionally, 2019 earned income can no longer be used in place of current-year earned income to calculate EIC. The earned income credit is available for taxpayers who earn under a certain amount. The number of dependents claimed on the return increases the EIC. Last year, the IRS allowed the best income amount to receive the highest credit. So if you made more in 2020 than in 2019, the IRS allowed you to use 2019’s income to calculate the EIC. That will not be the case for 2022.

Line 30, previously used for the Recovery Rebate Credit, is now reserved. If you did not receive the full amounts for stimulus 1, 2, or 3 when they were distributed, then the RRC would reflect that on your 2020 and 2021 tax returns.

https://www.opm.gov/policy-data-oversight/pay-leave/ARPA/

https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_%28tcja%29

The IRS will begin accepting 2022 individual tax returns on January 23, 2023. Since the regular deadline of April 15^th is on a Saturday, the deadline to file tax returns that have balances due will be April 18^th.

https://www.irs.gov/newsroom/irs-sets-january-23-as-official-start-to-2023-tax-filing-season-more-help-available-for-taxpayers-this-year

The new 1099-K reporting requirements raise questions about how to input the data to ensure the income is included or excluded correctly. For excludable income, the first workaround I heard about was to use Schedule C to report the income and then use an expense line to ‘reimburse for personal use’ with the same amount. However, it turns out there is some IRS guidance available at https://www.irs.gov/businesses/understanding-your-form-1099-k that provides alternatives.

Adjustments to income may be more appropriate if the 1099-K does not relate to actual business transactions. 

Scenario	Action(s) to take
Personal items sold at a loss	If you receive a Form 1099-K for a personal item sold at a loss, report the information on Form 1040, Schedule 1, Additional Income and Adjustments to Income with offsetting transactions. For example, if you receive a Form 1099-K for selling your couch online for $700 you will report: Part I – Line 8z – Other Income – Form 1099-K Personal Item Sold at a Loss $700 Part II – Line 24z – Other Adjustments – Form 1099-K Personal Item Sold at a Loss $700 The net effect of these two adjustments on adjusted gross income would be $0.
Personal item sold at a gain	If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, etc., at a gain, your gain is taxable as a capital gain. Report your gain as explained in the Instructions for Schedule D (Form 1040).For personal items sold at a loss, follow the instructions for Personal items sold at a loss.
Mix of personal items sold – some at a gain and others with a loss	Your gains and losses are to be reported separately and gains for assets cannot be offset by losses from the sale of personal assets. If you sold an item you owned for personal use at a gain, see Personal items sold at a gain for information on how to report. For personal items sold at a loss, follow the instructions for Personal items sold at a loss for information on how to report.
Form 1099-K received in error	If you received a Form 1099-K by mistake or if the form you received has incorrect information, contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number. If you can’t get a corrected Form 1099-K, report as follows: Same as personal assets sold at a loss except changing the description as follows: Part I – Line 8z – Other Income – Form 1099-K Received in Error Part II – Line 24z – Other Adjustments – Form 1099-K Received in Error

The DrakePortals^® SecureFilePro^® mobile app is now available in Google Play and the App Store!

have instant and anytime access to the portal for:

• File sharing
• Return review
• Messaging
• And more contactless features!

To download the app

Download SecureFilePro on Google Play or Apple App Store and login with the email address you use to access your client portal.

The IRS shuts down the e-filing system at the end of every year for two months to perform updates and maintenance.  Attempting to e-file the tax returns outside of the authorized dates will cause a rejection.  Ensuring that the return has been accepted within a year is imperative because the IRS will take several years to send a letter informing you that they have not received it. 

If a balance was due on the original return, that could mean additional penalties and fees since it could be considered late.  A refund could be lost since there is a deadline for filing returns with refunds of three years.  

The e-file closure date has not been given yet (as of 11/01/2021), but last year it was 11/18/2020 so at least make sure to file by that date.

Do you still need to file 2018-2020 tax returns? Contact me at stephanie@paulinestaxservices.com for instructions on submitting your documents.