Financial Intel Monthly

Regardless of age, profession, or current residence, many people share the ultimate goal of retiring comfortably. It's crucial to understand that the value of retirement may vary across different states, influenced by factors such as taxes, cost of living, and climate. Thus, certain states may appear more desirable and fitting for retirement than others. Furthermore, income and purchasing power can differ significantly in various locations of the country. In this article, we will rank the top states that are ideal for retirement.

The IRS has identified 21 states that made special payments to taxpayers in 2022. After a review of those special payments, the IRS has determined that taxpayers in many states will not need to report those payments on their 2022 federal income tax returns. Special payments in four of those states should be treated as refunds of state taxes paid, and taxation is determined under the general federal income tax rules for state tax refunds. Special payments in 17 states are treated as made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes. Illinois and New York are listed in this category but seem to have provided a mixture of payments that fell into multiple categories (see below).

Tax scams, as reported by the Internal Revenue Service (IRS), have a tendency to rise during tax season and/or other times of economic uncertainty. (1) Now that tax season is in full gear, the Internal Revenue Service is advising taxpayers to exercise extreme vigilance and prevent themselves from falling prey to dishonest tax schemes. According to the Federal Trade Commission (FTC), Americans aged 60 and older are more vulnerable to financial scams than any other age group, with scammers often posing as trustworthy organizations or individuals such as government agencies, charities, or healthcare providers. A recent report by the FTC showed that in 2020, consumers aged 60 and older reported losing over $1 billion to fraud, with the median loss being $600.  Fortune 500 employees and retirees should be aware of the following frequent tax scams in order to avoid getting taken advantage of.

We suggest our clients consider preparing for the upcoming 2023 tax season by taking advantage of a few important end-of-year tax strategies.

It's important that our clients take action on these tips by December 31, 2022 and find out if they can potentially minimize your tax burden in the spring.

You may donate money to charitable organizations throughout the year, for no other reason than your heart-felt desire to support causes that you care about. But if philanthropy is important to you, keep in mind that the associated tax breaks could potentially increase your ability to give. You might consider a more strategic approach to charitable giving, possibly as part of your year-end tax planning.

Here are some things for Fortune 500 employees and retirees to consider as they weigh potential tax moves between now and the end of the year.

1. Defer income to next year
Fortune 500 employees must consider opportunities to defer income to 2023, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rent, and payments for services. As a Fortune 500 employee, doing so may enable you to postpone payment of tax on the income until next year. 

One silver lining in the current bear market is that this could be a good time to convert assets from a traditional IRA to a Roth IRA. Converted assets are subject to federal income tax in the year of conversion, which might be a substantial tax bill. However, if assets in your traditional IRA have lost value, you will pay taxes on a lower asset base when you convert. If all conditions are met, the Roth account will incur no further income tax liability for you or your designated beneficiaries, no matter how much growth the account experiences.

The IRS announced that the starting date for when it would accept and process 2021 tax-year returns was Monday, January 24, 2022.

Tips for making filing easier
To speed refunds and help with tax filing, the IRS suggests the following:

• Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2022. You may need to allow additional time for mail delivery.
  
  
• Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1957), and their instructions.
  
  
• File electronically and use direct deposit.
  
  
• Check irs.gov for the latest tax information, including how to reconcile advance payments of the child tax credit or claim a recovery rebate credit for missing stimulus payments. Also, watch for letters from the IRS with important information about those payments that may help you file an accurate return.

Key filing dates
Here are several important dates to keep in mind.

• January 14. IRS Free File opened. Free File allows you to file your federal income tax return for free [if your adjusted gross income (AGI) is $73,000 or less] using tax preparation and filing software. You can use Free File Fillable Forms even if your AGI exceeds $73,000 (these forms were not available until January 24). You could file with an IRS Free File partner (tax returns could not be transmitted to the IRS before January 24). Tax software companies may have accepted tax filings in advance.
  
  
• January 24. IRS began accepting and processing individual tax returns.
  
  
• April 18. Deadline for filing 2021 tax returns (or requesting an extension) for most taxpayers.
  
  
• April 19. Deadline for filing 2021 tax returns (or requesting an extension) for taxpayers who live in Maine or Massachusetts.
  
  
• October 17. Deadline to file for those who requested an extension on their 2021 tax returns.

Awaiting processing of previous tax return?
The IRS is attempting to reduce the inventory of prior-year income tax returns that have not been fully processed due to pandemic-related delays. Taxpayers do not need to wait for their 2020 return to be fully processed to file their 2021 return.

Tax refunds
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, any tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.

Here are some things to consider as you weigh potential tax moves between now and the end of the year for corporate employees.

1. Defer income to next year
Consider opportunities to defer income to 2022, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

On Saturday, September 25, 2021, the House Budget Committee voted to advance a $3.5 trillion spending package to the House floor for debate. The House Ways and Means Committee and the Joint Committee on Taxation had previously released summaries of proposed tax changes intended to help fund the spending package. Many of these provisions focus specifically on businesses and high-income households.

Expect these proposals to be modified; some will likely be removed and others added as the legislative process continues. As we monitor progression through the legislative process, though, here are some highlights from the previously released proposed provisions worth noting.