DNA Low Income Tax Clinic (LITC)

Dear Taxpayer,


The 2024 Tax Season is approaching and we want to share some information and tips with you as you start thinking about your 2024 tax return.

Why File?


You might receive a refund.  According to the Tax Policy Center, about $7 billion in benefits go unclaimed each year.  Refunds come from (i) excess taxes withheld from your paycheck or (ii) the earned income tax credit (“EITC”) and/or the child tax credit (“CTC”).

For 2024 federal returns, the maximum EITC ranges from $632 for workers with no children to $7,830 for workers with three or more children.  The maximum CTC for 2024 is $2,000 per qualifying child.

At the state level, New Mexico provides a Working Families Tax Credit equal up to 25 percent of the EITC, an expanded New Mexico Child Tax Credit up to $600 per child, and a bigger New Mexico Low-Income Comprehensive Tax Rebate up to $790 per household.

You can still file for 2021, 2022, or 2023.  The IRS allows taxpayers to file a Form 1040 within three years of the original filing deadline.  The final date to file for 2021 is April 17, 2025; April 17, 2026 for 2022; and April 17, 2027 for 2023.

Avoid Penalties.  You may incur penalties if you owe money to the IRS and fail to file or pay.  If you owe and file more than 60 days late, the minimum IRS penalty for failing to file can reach $510.

Arizona and New Mexico both have failure to file penalties as well.

Filing Can Be Free.  Volunteer Income Tax Assistance (“VITA”) and Tax Counseling for the Elderly (“TCE”) trained volunteers must pass a test each tax season and are qualified to help low-income taxpayers of any age file their returns.

When You File, Remember These Tips:

File Your Taxes Online Directly with IRS for Free.  IRS Direct File is an option if you lived in Arizona or New Mexico for the entire year of 2024.  Direct File supports certain income, credits, and deductions.  Check to see if IRS Direct File is an option for you at: https://www.irs.gov/filing/irs-direct-file

Use an enrolled agent.  If you use a paid tax preparer, use an enrolled agent (“EA”).  EAs must pass a rigorous IRS test and take 72 hours of tax classes every three years.  (CPAs and attorneys are also subject to strict education requirements.)  Most commercial tax preparers are not as qualified as EAs and have an error rate as high as 89 percent.

To find an enrolled agent near you, visit the National Association of Enrolled Agents’ website: https://taxexperts.naea.org/expertdirectory

Or, visit the IRS’s directory of preparers to find attorneys, certified public accountants, enrolled agents, or a preparer with special IRS training: https://irs.treasury.gov/rpo/rpo.jsf

Avoid tax preparation loans.  Commercial preparers advertise interest-bearing loans as “advances”, sometimes in cash, with “no fees” against your refund.  Interest rates can be high and cost taxpayers hundreds of dollars.

Beware of “Ghost Preparers”. A ghost preparer is someone who requires payment to prepare a tax return but does not otherwise identify themselves. They may encourage taxpayers to take advantage of tax credits and benefits for which they don’t qualify and take a large percentage or the entire refund. Often, these ghost preparers disappear after receiving payment and leave the taxpayer to deal with any tax consequences.

Know your rights as a Taxpayer.  Tax preparers MAY NOT:

  • Require that you borrow against your refund, i.e., may not force you to agree to a loan.
  • May not ask you to sign a blank or incomplete return.
  • Refuse to provide you with a copy of the entire return, including copies of all schedules.

Know the difference between 1099s and W-2s.  You will receive a W-2 if you performed services as an employee.  However, if you were an independent contractor, you will receive a 1099-NEC or 1099-MISC.  The taxes you pay are different depending on which form you get.  Independent contractors usually end up paying higher taxes because they pay the Self-Employment tax themselves.  Be wary, sometimes employers will issue a 1099 instead of a W-2 to save themselves money and avoid providing important employee and social security benefits.  A Low-Income Taxpayer Clinic can help you determine whether you classify as an employee or independent contractor and help you file an SS-8.

Gather and keep complete records if you are SELF-EMPLOYED or an INDEPENDENT CONTRACTOR.  The IRS requires those who are self-employed or are independent contractors to report income to the IRS on a Schedule C or Schedule 1 Form.  Be sure to have complete records of income and expenses when you go to your income tax preparer.  You may be able to deduct related expenses.  IRS Publication 334 identifies exactly what you need: https://www.irs.gov/forms-pubs/about-publication-334.

Form 1099-K.  If you are a gig worker, hobby seller, self-employed, a partner in a partnership, or run a corporation, you will generally need to report any income reported on a Form 1099-K.  You will receive a Form 1099-K if you received payments for goods and services sold related to such roles exceeding $600 through platforms like Zelle, Venmo, eBay, or PayPal.  However, you will also be able to deduct related expenses like gas or the cost of goods sold.  Again, keep good records of all income and expenses.

Gross Receipts Tax.  Self-employed workers or independent contractors may be required to pay gross receipts tax in New Mexico.  For more information, visit:  https://www.tax.newmexico.gov/businesses/gross-receipts-overview/who-must-file/

Questions?

Call us!  DNA’s LITC is ready to help.

DNA’s Central Intake Number: 1-833-362-1102

IRS FAQs for Tribal Members.  The IRS website provides answers to some Frequently Asked Questions regarding Tribal Members’ individual income tax obligations and responsibilities at: https://www.irs.gov/government-entities/indian-tribal-governments/faqs-for-indian-tribal-governments-regarding-individual-income-taxes

Sincerely,

DNA LITC