EL PASO, Texas (KTSM) – January 17th marks the start of the tax season however, some parents may not be getting their expected refund and may actually owe the IRS for overpayment of Child Tax Credits distributed.
According to the Internal Revenue Service, more than 75% of Americans on average get a refund each year but people may be in for an unpleasant surprise this year as the Expanded Child Tax Credit may substantially decrease the refund amount for parents or could stick them with a liability of nearly $2,000 a child.
Brian Mirau, the Founder and President of Mirau Capital Management and investment advisor in New Mexico and Texas, explains that the Child Tax Credits distributed each month to parents was not additional ‘free’ money given out by the government, rather it was a monthly ‘pre-payment’ of a credit parents are permitted to claim at the end of the year.
“The tax credit was a one-year provision that expanded the tax credit from $2,000 to the range of $3,000 to $3,600 depending on the child’s age for each child in the low-income households. The expansion also converted the credit from something you get with your income tax refund to a monthly series of payments that you get throughout the year, so you don’t have to wait to get that money. It just spread out that tax credit over the year instead of getting it in a lump sum at the end of the year.”Brian Mirau – Founder | President Mirau Capital Management
Mirau compared it to saving money. Rather than saving all year and getting your money at once, you save a little each month and spend it as you go.
The Child Tax Credit expansion was part of the American Rescue Plan Act that was passed into law in March of last year to counter the financial fallout from Covid-19. In addition to expanding the Child Tax Credit, It included a $600 bonus for kids that are younger than six.
According to the IRS, Some 59 million parents were automatically enrolled in the program and started receiving the monthly payments in July. Enrollment criteria were based on either 2019 or 2020 tax data.
However, because some parents may have a change in filing status, dependent status, or an increase of income from 2020 to 2021, some parents may actually have to repay the IRS up to $1,800 a child.
If you still qualify for the Child Tax Credit, parents may see a substantial decrease in the refund they typically receive because they’ve already received half of The Child Tax Credit as monthly payments during the second half of 2020.
Mirau also explains that filing early is beneficial for many reasons including a quicker return on your refund and more time to correctly complete your taxes,
“You want to spend as much time and do it as early as possible because it gives you time to sit down and think about your tax situation when you’re not in the heat of the battle. When you wait to the last minute a lot of times, we’ll make decision or miscalculations that may affect our taxes. If we make a mistake, it may throw us into a situation where we have to make amendments. That always creates additional costs.”Brian Mirau – Founder | President Mirau Capital Management
Filing early can also protect you against identity theft, and the quickest way to get your money, according to Mirau, is to sign up for direct deposit.
There are ways to maximize your refund and avoid audits.
- Keep good records
- Deduct everything you can
- Report earnings correctly – including the Covid-19 relief payment and Child Tax Credit Payments
- Plan early
- Evaluate expenses
- Make a budget
When planning for tax withholdings, make sure you’re as efficient as possible.
“One thing you do when you pay your taxes you want to make sure that your tax bill comes out as close to zero as possible. This is one thing you have to check every year because as they change the tax brackets you may have to adjust your withholding. You don’t want to adjust it to where you’re withholding too much and you get a big tax refund because people think when you get a big tax refund its free money but really it’s just your money being returned to you that the government has had all year long and they’re not paying any interest on it.”
Mirau says that tax planning is a year-long event, not something you wait until the last minute to do., and starting the tax planning process now, for next year, is the best plan of attack. Pay attention to all your deductions so you can make an informed decision on whether to use the standard deduction or an itemized schedule.
“Just be a good planner. The most we know an ounce of prevention is worth a pound of cure. Make sure you keep good records because if you ever do get audited you want to make sure you can support everything you do on your taxes. Just like being a good business person you want to make sure you’re a good stewardess on your taxes.”
Filing early can also protect you against identity theft.
Mirau also recommends obtaining a tax professional to help you through the year-long process, someone who can make sure to take advantage of the opportunities provided in the Internal Revenue code.
This year’s tax filing season is set to start on January 17th and the deadline this year is April 18th.