How to get organized to get the biggest tax refund

Key Concepts

• Tax Refund: Money returned to taxpayers when their tax liability is less than the amount of taxes withheld or paid.
• Tax Liability: The amount of tax an individual or entity owes to a taxing authority.
• Tax Extension: A form allowing taxpayers to delay filing their tax return, not delaying tax payment.
• Deductions: Expenses that can be subtracted from adjusted gross income (AGI) to reduce taxable income.
• IRS: Internal Revenue Service, the U.S. government agency responsible for tax collection and enforcement.

Increased Tax Refunds in 2024

The latest data from the IRS indicates an increase in the average tax refund this year, reaching over $2,200. This represents a nearly 11% rise compared to the previous year’s average refund amount. This positive trend is largely attributed to the passage of a significant legislative act (“the one big beautiful act” as referred to in the interview) last year, which introduced numerous new tax deductions for American taxpayers. These deductions are increasing the potential for larger refunds.

Tax Preparation & Organization

Aaron Voison, Managing Director of Wealth Management Services at EP Wealth Advisors, emphasizes the importance of organization during tax season. He describes the current phase as “organization mode,” focusing on gathering all relevant financial statements – both mailed and emailed – documenting income and expenses from the previous year. This meticulous collection of information is crucial for accurately calculating tax liability and maximizing potential refunds.

Filing Extensions: Process & Considerations

Voison addresses the situation for individuals feeling overwhelmed or unable to meet the tax filing deadline. He states that filing for an extension is acceptable, and encourages doing so sooner rather than later, particularly if working with a tax preparer. However, he strongly cautions that an extension to file does not equate to an extension to pay. Tax liability remains due on the original filing deadline, even with an extension. He clarifies, “just because you're extending that tax deadline to file, the payment is unfortunately still due when you file that extension.”

Impact of New Deductions

The increase in refund amounts is directly linked to the new deductions introduced by the legislative act passed last year. While the specific details of these deductions aren’t elaborated upon in the transcript, the implication is that a greater number of Americans are now eligible for deductions that reduce their taxable income, leading to larger refunds.

Actionable Insights

• Gather Documents Immediately: Begin collecting all income and expense statements (W-2s, 1099s, etc.) as soon as they become available.
• File for Extension Early (If Needed): If facing time constraints, file for an extension promptly, but remember to estimate and pay any potential tax liability by the original deadline.
• Understand New Deductions: Research and understand the new tax deductions available to determine eligibility and maximize refund potential.

Conclusion

The transcript highlights a positive trend in tax refunds for Americans this year, driven by new tax deductions. It underscores the importance of proactive tax preparation, emphasizing organization and timely filing (or extension filing with payment). The key takeaway is that while extensions are available, they do not relieve taxpayers of their obligation to pay taxes on time.