Donations, Deductions and Dependents: 10 Tax Tips from Cal Poly Experts
As W2 forms arrive, it's a good time to think about ways to maximize your tax refund or minimize your burden: like itemizing charitable donations or looking into a deduction for your home office.
Cal Poly has two tax clinics, the Volunteer Tax Assistance Program (VITA), and the Low Income Tax Clinic (LITC), which give students real-world experience helping community members: VITA offers free tax help to qualifying taxpayers with $60,000 or less in gross income, while the LITC helps low-income residents involved in tax controversies year-round.
With that in mind, VITA director Trisha Daughtrey and LITC executive director Lisa Sperow offer their top ten tax tips:
10. Know who is eligible for the Earned Income Tax Credits.
The Earned Income Tax Credit (EITC) can help low- to moderate-income earners, especially with children. Yet low-income taxpayers who claimed it were 5 1/2 times more likely to get audited than anyone else. If you claim a child here, the child must have lived with you more than half the tax year. And if you are married, you can’t claim the EITC using the single filing status.
9. Be aware of 401(k) withdrawals.
While contributing to a retirement account can save you tax money, remember that early withdrawals or defaulted 401(k) loans will result in an additional 10 percent income tax.
8. Be aware of the Dec. 31 cutoff.
If you paid expenses before Dec. 31, 2022, they can be deducted from the 2022 tax return. That includes property taxes, medical bills and charitable contributions. If you are looking to file as “married filing jointly,” make sure the marriage happened before Dec. 31, 2022. Likewise, if you are recently divorced and planning to file as “single” or “head of household,” make sure the divorce decree was filed before Dec. 31, 2022.
7. Claim a Working from Home (WFH) deduction – if it applies.
Many more Americans are working from home since the pandemic. But you can only claim the WFH deduction if you own a business or have self-employment income, such as freelancers and gig workers. (If you get a W2, then you can’t take these deductions, even if you work from home.) Deductions can include utilities, insurance, mortgage/rent and even depreciation.
6. If you sold a home, be aware of capital gains taxes.
You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if you are filing jointly. That exemption is allowable only once every two years.
5. Report self-employment if your net earnings were $400 or more.
This especially impacts college students, who often work gig economy jobs, such as driving for Uber or walking dogs through the Rover app.
4. Bring all your 2022 tax documents.
If someone is assisting you, make sure you have all the needed documents, including W2s, 1099s, business/income expenses, childcare expenses, educator expenses for teachers, donations and more. Check your prior year’s return to help remember.
3. Double and triple check your return for mistakes.
The most common reasons for e-file rejections are simple mistakes, such as name misspellings or errors with ZIP codes and Social Security numbers.
2. File for free.
Every year, people spend hundreds of dollars to have a tax preparer do their returns. Yet, even paid professionals can make mistakes. If you want to file yourself, MyFreeTaxes.org offers free filing with virtual help for incomes of $66,000 or less. There are also VITA clinics nationwide that can assist those with incomes under $60,000 for free.
1. Be aware of identity theft attempts.
Identity thieves thrive on tax season. Ignore texts, phone calls or emails claiming to be from the IRS. The agency will only communicate with you via mail.
While there have been well-publicized IRS conflicts with celebrities, audits are not just for the wealthy, Sperow warns.
“I think your chances of getting audited are a little better if you’re lower income, because those are easier audits for the IRS to do,” Sperow said. “It can be very easy for the IRS to audit someone who doesn’t have much going on versus a very complex issue.”