February 09, 2023
Topic: IRS
If you like to file your taxes early and get it out of the way, you might want to hold off for a little bit. The IRS just released a statement warning taxpayers not to file their taxes right away to avoid complications later on.
In this blog post, I will explain why you might want to hold off on filing your taxes to prevent any mistakes.
Reason #1: Rebate Checks
For most people, the tax deadline is April 18. So at the latest (unless you request an extension), that is when you will want to file your taxes.
That said, many Americans are trying to file their tax returns as fast as possible to receive their tax refund.
Although receiving a refund from the government can be exciting, the IRS is asking millions of people to wait to file their taxes.
Why are they asking you to hold off?
Last year, millions of Americans across the nation received tax rebates from their state.
Many states were offering rebate checks because they had strong economic growth and received extra money from the government.
As a result of a budget surplus, many states were generous. They decided to give that money back to the citizens who needed it.
Now the IRS is trying to determine whether those tax rebates are taxable income. Depending on what the IRS decides, you could have to amend your tax return if you filed it too early.
According to the Tax Foundation, at least 22 states gave out tax rebates last year.
Here is the list of states:
- Alaska
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Maine
- Massachusetts
- Minnesota
- New Jersey
- New Mexico
- New York
- Oregon
- Rhode Island
- South Carolina
- Virginia
If you live in one of these states and have already filed your tax return, there’s a chance you might need to file again. If you stated the rebate is taxable on your return, you might need to file an amended return to exclude the money.
Again, this all depends on whether the IRS decides the tax rebate is taxable income or not. If you have not filed your tax return yet, hold tight for the next week or two for the IRS to release further guidance.
Reason #2: You Need More Documentation
Even if you didn’t receive a tax refund or rebate late last year, you might still want to hold off until mid-March to file your taxes.
This is because you may not have the required documents to file your taxes.
For example:
- 1099-B for investment sales and capital gains
- 1099-NEC for self-employment income
- Health savings account distributions
These are all documents that can arrive anywhere between now and March. That said, most tax forms arrive in late January to mid-February.
If you file your taxes without these important documents, you could end up in trouble with the IRS.
Companies send copies of these documents to you and the IRS every year. If the documents they receive from the companies you’re associated with do not match what’s on your tax return, then there’s a problem.
These problems may delay the processing of your refund. Not only that, but It could take weeks, if not months, to resolve.
Reason #3: Crypto Scandals
Late last year, FTX founder Sam Bankman-Fried was arrested for “various offenses against laws of the United States.”
This platform was made to allow investors to trade cryptocurrency. It was the most respected platform for trading crypto until November last year. The company lost $8 billion of its customers’ money.
Many Americans scrambled to withdraw their holdings, but FTX froze their accounts and filed for bankruptcy. Now many people are at risk of losing some, if not all, of their life savings.
Out of all the crypto scandals that occurred last year, this was probably the biggest one yet.
Now suppose you are a victim of that crypto scandal. In that case, you might want to wait and see if anything is recoverable before filing your taxes.
If you get some of your money back, that could change the outcome of your tax return.
That said, some experts believe that you won’t be able to write off any losses from the FTX scandal.
Normally when you lose money due to making a bad investment, you’re allowed to write up to 3,000 in losses for that year.
However, that’s not the case with this particular cryptocurrency scandal. The tax code specifies that to write off your losses; you must first sell or exchange that asset.
Losing access to your asset because of the FTX shutdown is different. It might not be considered a capital loss by the IRS.
As usual, this is something that you want to consult your CPA or tax strategist about before proceeding to write it off as a loss.
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We wrote another blog focused on tax strategy that explains the difference between a tax strategist and a tax preparer.
If you’re trying to maximize how much money you can save on taxes, this blog post is for you!
