Tax Time: Key Employee Reminders

Tis the season for tax returns. We are about 30 days away from the perennial IRS due date. More than half of individuals file their annual federal income tax returns before April 1st, with the majority of the remaining filers submitting during the first two weeks of April, while approximately 5%request an extension to file until October 15^th, according to a Tax Attorney Dail study in 2019. According to IRS data, roughly 10% of individuals do not file their taxes, though it's possible that the actual number is even higher. Despite the sheer number of non-filers, some may evade detection, but with modern technology, it is becoming increasingly challenging to remain undetected by the IRS indefinitely.

Over the next 30 days, make sure to communicate to your employees -

1. Scams: Communicate to  your employees to be on the lookout for and avoid common W2 phishing     scams.

W-2 phishing targets businesses and their employees. The scammers impersonate executives or human resources representatives and send emails to employees requesting their W-2 information. The email often appears genuine, with the company's correct logos and contact information, which can deceive employees into disclosing sensitive information.

The W-2 contains personal information, such as social security numbers and addresses, that the scammers can use to commit identity theft or file fraudulent tax returns. In some cases, the scammers even use the information to file for unemployment benefits under the employees' names.

Businesses can take several steps to prevent W-2 phishing, including training their employees to recognize and report phishing emails, implementing two-factor authentication for sensitive information, and reviewing the emails' sender addresses for any suspicious activity. Additionally, businesses can encrypt sensitive data to protect it from unauthorized access.

If a business or employee falls victim to W-2 phishing, they should contact the IRS immediately to report the scam and take necessary steps to protect their personal information from further misuse. The article emphasizes the importance of being vigilant and cautious when receiving unsolicited emails, especially those that request sensitive information.

2. Reminders as to why it is important to file on time:

·      Avoid penalties: If you miss the deadline for filing your personal taxes, you may have to pay penalties and interest on the amount owed. These penalties can add up quickly and will end up costing you more than if you had simply filed on time.

·      Receiving refunds: If you are owed a refund on your personal taxes, you will not receive it until you file your return. Filing on time ensures that you receive any refund owed to you in a timely manner.

·      Meeting legal obligations: Filing personal taxes on time is a legal obligation. Failing to file can result in legal consequences, including fines, penalties, and even criminal charges in some cases.

·      Planning ahead: Filing your personal taxes on time allows you to plan ahead and make any necessary adjustments to your financial situation. This can help you to avoid surprises and make better decisions about your finances in the future.

3.    Extension? You still need to file by April 15^th –

You may qualify for a personal tax filing extension by filing Form 4868 with theIRS. Form 4868 is the application for an automatic extension of time to file a U.S. individual income tax return. You can use this form to request an extension of time to file your personal tax return, which gives you an additional six months to file.

To qualify for the extension, you must file Form 4868 by the original due date of your tax return, which is usually April 15th. The extension will give you until October 15th to file your tax return.

It's important to note that filing an extension only extends the time to file your return, not the time to pay any taxes due. Therefore, if you owe taxes, you must estimate the amount you owe and pay it by the original due date to avoid any penalties or interest charges.

Additionally, if you are living abroad, you may be eligible for an additional two-month extension, which would give you until December 15th to file your tax return. To qualify for this extension, you must attach a statement to Form 4868 explaining why you need the additional time.

It's important to remember that the rules and regulations regarding tax extensions can vary depending on your specific situation and circumstances. It's always best to consult with a tax professional or the IRS for guidance on your tax situation.

4.    Recommended ways to use your tax refund:

Depending on their financial goals and priorities, people can use their tax refund money in various ways. Here are a few options:

1. Pay off debt: One of the best ways to use your tax refund is to pay off high-interest debt, such as credit card balances or personal loans. Reducing or eliminating debt can help improve your credit score and free up more money for other expenses.
2. Build an emergency fund: It's always a good idea to set aside an emergency fund to cover unexpected expenses or job loss. You can use your tax refund to start or add to an emergency fund, which ideally should cover three to six months of living expenses.
3. Save for retirement: Investing your tax refund in a retirement account, such as a 401(k) or IRA, can help grow your retirement savings over time. You may also be eligible for tax benefits or credits for contributing to retirement accounts.
4. Invest in a home: If you're planning to buy a home, you can use your tax refund to save for a down payment or closing costs. Alternatively, you can use the money to make home improvements or repairs that can increase the value of your property.
5. Spend on experiences: While it's important to prioritize financial goals, it's also okay to treat yourself occasionally. You can use your tax refund to travel, take a class, or try a new hobby. Just make sure to spend within your means and not go overboard with unnecessary purchases.

Ultimately, the best way to use your tax refund depends on your individual financial situation and goals. It's important to have a plan for your refund to make the most of it and avoid frivolous spending.

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