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Janae Pierre: I am Janae Pierre, sitting in from Melissa Harris-Perry on The Takeaway.

It's about that time of year to file your 2022 tax return. I know we're all dreading that April 18th tax deadline, but to ease some of that anxiety, we brought in a financial expert to answer some of your tax questions.

Lynnette Khalfani-Cox: I'm Lynnette Khalfani-Cox, The Money Coach. I'm the CEO and co-founder of TheMoneyCoach.net, a financial education company.

Janae Pierre: What are the big changes to the tax code this year that people should know about?

Lynnette Khalfani-Cox: In a nutshell, there are a number of tax deductions and credits that have unfortunately gone away. What that means is a lot of people can expect their tax refund checks to be smaller than they had been in years past, certainly smaller than they were from the 2021 tax year. It's not a good news. I'm sorry to have to report that. For example, the child tax credit that really changed in a big way.

In 2021, parents who had kids under the age of 18 could get what was called an enhanced child tax credit of $3,000 or even $3,600 for kids under the age of six. However, for the 2022 tax year, that child credit reverted back to the old number and it's back to $2,000. Big difference there. Then of course, we all remember what happened during the pandemic when there was a lot of stimulus money being doled out.

Most Americans got $1,400 in the form of stimulus checks. Some people got them directly, but many people actually received that direct payment as a so-called recovery rebate credit on their taxes. That $1,400 was provided in their 2021 tax refund check. That of course went away in 2022. No more pandemic money being doled out there. Then just a couple of other things. One is charitable tax deductions. Some of that changed. Typically you have to itemize your deductions in order to be able to claim charitable tax deductions.

However, for the 2021 year, there was this really a temporary tax break that was afforded to Americans so that even if you didn't itemize, even if you took the standard deduction, you were able to take this deduction. It was $300 for individuals who didn't itemize and $600 for married couples. Sad to say, but Congress they didn't extend that in 2022. All of this explains some of the reasons why we're seeing smaller tax refund checks this season.

Janae Pierre: Last year there was a lot of talk about a new tax policy that would require users of digital wallets like Venmo and PayPal to start reporting income if they received $600 or more. What's up with that?

Lynnette Khalfani-Cox: There's good news on that front. Certainly for the people who were worried about having to do all of the extra paperwork, pretty much they kicked the can down the road so to speak for one year. Nobody has to worry about that this tax season at all. Now, I hasted to tell your listeners because I've been doing a number of interviews and I've been making this clear to folks that it doesn't mean that you still don't have to report to the IRS money that you earned, you are still legally required to report what you've earned.

It's just that this specific provision regarding those 1099s and how they were being doled out to gig economy workers, freelancers, 1099 contractors, et cetera, that's just a paperworking thing that you don't have to worry about this year.

Janae Pierre: Yes. That new text policy was one of my concerns, but now let's get to some listener questions.

Dion: My name is Dion from Desert Hot Springs, California in regard to good working. I have some W2 income from working for an employer, but I also have some independent contracting income from doing basically a lot of gig work and I was wondering the best way to file under those circumstances.

Lynnette Khalfani-Cox: Great question, and he's certainly not alone because many people have a side hustle, or temporary or part-time work contracting, consulting et cetera. In fact, I encourage all people to do that. What you should do is file a 1040, your federal income taxes, and you'll report your W2 wages as your earned income from an employer. You will also report likely on a Schedule C your self-employment income because essentially all of that gig economy that is not paid through an employer that you get 1099 income for that is essentially self-employment income. You want to file that on a Schedule C.

Again, it just goes right along with your standard 1040 and then you account for that income as well. You're also able to deduct business expenses from anything that you incurred as a result of that side hustle or gig economy work. It boosts your income in terms of you telling the government additional sources of revenue you brought in that were outside of your W2, but then you can also deduct or take away any expenses that you incurred as a result of running that side business as well.

Janae Pierre: Now, earlier you were talking about the child tax credit. Here's a childcare question for you.

Andrew: Hello, this is Andrew in Durham, North Carolina. I had a friend recently telling me that they are bridal with having to pay daycare, and I was wondering if they could write it off on their taxes for 2022 and 2023.

Lynnette Khalfani-Cox: Yes, there is for 2022 a credit for childcare and dependent care expenses. For folks who are working the number is essentially it was $3,000 per qualifying person and up to $6,000 if you had two or more qualifying people. There is a way to do that on your taxes. IRS publication 503 is the one that guides you through all of the child and dependent care expenses that you can get credits and or deductions for.

Janae Pierre: Okay. We're taking a quick tax break here, but we'll be back with more answers to some of your tax questions in a moment.

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Janae Pierre: You're back with The Takeaway. I'm Janae Pierre in from Melissa Harris-Perry. We've been talking with Lynnette Khalfani-Cox, a financial expert known as The Money Coach, and she's been answering some of your questions about the tax season. Let's get to another call.

Devora: Hi, I am Devora and I'm calling Brooklyn, New York. My question is, how do I file my taxes federal and state for 2023 when I have not yet gotten an answer to my 2021 tax refund? What do I do?

Janae Pierre: 2021 she says, Lynnette, could you help her out?

Lynnette Khalfani-Cox: I can help her. Unfortunately, the IRS told us in the fall of 2022 that they had a big backlog. They had some 9 million tax filings that had not yet been processed. The vast majority of them, about 7 million of them were paper tax returns. This is one of the reasons that the IRS wanted to beef up their manpower and the personnel that they had on hand just to deal with a lot of the backlog. I'm not surprised that unfortunately she got caught up apparently in that back law.

Now, just having not had your 2021 tax filing processed, or not having yet received any potential refund that was due you, does not mean that you cannot still file and you absolutely should still file in a timely fashion, your 2022 tax filing that's due in April. The two are not mutually exclusive and you're not precluded from filing that just because you haven't yet either received further word about how they're handling that, or you haven't gotten a refund back. What I can tell you is likely to happen is that, let's say you were due a refund check or even if you owed, if it's processed by the time that you file your 2022 tax return, and the tax filing deadline this year is couple extra days. It's Tuesday, April of the 18th. If you owed, let's say from the 2021 year, but you were getting a refund for the 2022 year, they'll offset some of that.

You won't get as big of a refund. Maybe they'll take some of that payment and put it towards what you owed for 2021, but if it's the opposite, then you can expect the reverse to happen. Let's say that you were due a refund from 2021, but you owed in 2022. If they have indeed processed it by that time you file, then you probably will actually get some money back.

The long of it and of short of it is, don't neglect to file your taxes on the mistaken assumption that, oh well they haven't even done my other one because you don't want to get hit with failure to file penalties, and any potential failure to pay penalties, because those can really add up. They can be as much as 5% of what you owe per month. You don't want to mess around with Uncle Sam on that front.

Janae Pierre: We both know Uncle Sam will always get his.

Lynnette Khalfani-Cox: That's right.

Jim: Hi, this is Jim calling from Somerset, New Jersey. My wife and I made almost $200,000 this year and spent 34,000 on grad school and we still had to pay taxes. It's really rough being a young couple and still having to deal with all these things that cost a lot, especially in New Jersey. What are ways that we can make that tax bill a little smaller? Please, don't tell me, "Have kids, buy a house."

Lynnette Khalfani-Cox: [laughs] I won't tell you have kids or buy a house because those are two of the biggest expenses you'll ever incur. I know you're trying to go in the opposite direction and save not incur additional expenses. There actually are a number of things that you can do to lower your taxes. One is you can start to really look at how you're saving for retirement. You can of course, contribute to a retirement workplace plan, a qualified retirement plan, like a 401(k), a 403(B), a 457, through a savings trust, depending on if you have a public or private employer or if you work for the government, et cetera.

Long story short, those are ways that you can lower your taxable income. In a nutshell, if you contribute, say, $10,000 to your 401(K) on the job, and let's say your income was $100,000. Now you've lowered your taxable income by that amount, by the $10,000 contribution and your taxable income now becomes $90,000. That means you'll ultimately have to fork over less money to Uncle Sam. That's one thing you can do.

You can also contribute to an individual retirement account. You can contribute to a health savings account, and HSAs are great ways to set aside money for your healthcare expenses, but to do so in a tax-efficient way. Then also even things like understanding or knowing what you are going to normally buy or do in the course of your everyday living can be instructive to save you on taxes.

For example, if it's in the cards for you in 2023 to purchase a new car, you might think about buying an electric vehicle, for example, because there is now a $7,500 tax credit available for electric vehicle purchases. Again, I'm not telling you to go out there and buy a car if you don't have a need for it, but certainly, if it was something that was on the horizon, that is something to take into consideration as well. Don't forget, the tax credit is way more valuable than the tax deduction, because the tax credit comes back to you kind of dollar for dollar and lowers your tax bill by that amount.

Janae Pierre: Definitely like that. Okay, Lynnette, here's our last call.

Patrick: Hi, this is Patrick calling from Washington State. My question is, as a small business owner, what are the largest tax deductions and or ways to pay less tax next year?

Janae Pierre: Lynnette.

Lynnette Khalfani-Cox: Yes. As a small business owner, I tell people you should try to write off pretty much everything that you're doing by combining some level of personal with business activities. You can certainly write off your business meals and lunches that you take. You can write off business travel and even if you combine it with a certain amount of personal travel built in there, the airline tickets, the hotel stays, et cetera can also be deducted on your taxes.

If you have a home-based business, you can certainly write off a percentage of your house or your apartment, your condo, whatever you are living in and take a fraction of that, that is portioned towards running the business and operating whatever it is that you do and offer in terms of your products and services. Ditto for utilities. Anytime you take the home office deduction, it doesn't just apply to say the mortgage interest payments that you've made, et cetera. It also applies to your energy costs, your cell phone bills, your internet service, and so forth. All of those can be great tax deductions.

Then anything and everything that you're doing, of course, to market, promote to sell your company's services, those are all legitimate tax deductions. If you're doing the life of a full-time entrepreneur, we all know how hard we work and a lot of it actually is tax deductible. Again, I would encourage you to read upon some of the IRSs publications because they absolutely do have guidelines for entrepreneurs to talk about the full breadth of things that are available from the car that you drive. If you drive a car in business and you could-- my husband and I at one point purchased an SUV for almost $60,000. We were able to write off under the tax law the full amount of it in-

Janae Pierre: Okay, company car.

Lynnette Khalfani-Cox: -one year. Yes. We because we use it exclusively for business. Again, there are many, many tax breaks to entrepreneurs. Being a small business owner and understanding that the tax code benefits and rewards entrepreneurship is one of the single best ways that you can facilitate wealth in this country and indeed get the government to partner with you essentially to underwrite some of your business costs. Even if it's you hiring employees, there's tax credits and benefits for that. A ton of benefits that are available for business owners.

Janae Pierre: Lynette Khalfani-Cox is a financial expert and she's also known as The Money Coach. Coach, thanks for the advice.

Lynnette Khalfani-Cox: Thank you.

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