8 Frequently Asked Tax Questions to CPAs

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Can they make it more complicated? The Internal Revenue Service (IRS) has a knack of making the tax code confusing. This forces many people to rely on a certified public accountant (CPA) to prepare and file their taxes.

This time of year, CPAs are fielding numerous questions regarding all aspects of filing taxes. Here are the top eight most frequently asked questions and answers.

1) If I Don’t Make Much Money, Do I Need to File?

This is a question many of the cohort in Generation Z or millennials have. Since most are in school or just starting out, they may not make a lot of money.

Depending on your filing status and age, the minimum income, under age 65, to file is $13,850. So, you’re not required to file taxes if you’re under that threshold. But you may want to file anyway.

If you work and have had taxes deducted from your pay, you might be owed a refund. You won’t receive a tax refund unless you file.

2) How Do I Know How Much Taxes to Pay If I File an Extension?

Regardless if you file an extension, you‘ll need to pay taxes on time, or you’ll have penalties and interest to pay.

You can use the estimated tax worksheet on Form 1040-ES. Use Line 13c as your estimated taxes due/balance owed on your extension as filed on Form 4868.

Use the actual figures you have to complete the form and estimate figures you don’t have. You'll want to use the amount of the tax due on the return as your estimated taxes due. Be sure to replace all estimates with actual figures when you finally file.

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If your income hasn’t changed drastically, look at last year’s taxes and use the figure you paid plus 10 percent. Remember, you‘ll receive a refund if you overpaid. But if you underpaid, you’ll have penalties and interest added on to your tax bill.

3) Are Home Improvements Tax Deductible?

Home improvements are personal expenses and aren’t tax deductible the year they are made. But if you keep receipts for those expenses, they may reduce your taxes in the year you sell your house.

Although you can’t deduct that new bathroom or roof, there are energy tax credits.

After Jan. 1, 2023, through 2032, you can take a tax credit for qualified energy-efficient improvements to your home. The tax credit is up to $3,200 per year. It breaks down to $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

There are $1,200 for qualified property costs such as doors, windows, and home energy audits. And you can claim the maximum credit yearly because there’s no lifetime dollar limit.

4) Do I Have to Pay Taxes If I Receive Money Through Venmo or PayPal?

Yes, if you took payment for services or products through Venmo or PayPal, you'll need to pay taxes on it. The IRS requires PayPal and Venmo to send customers a Form-1099 if the income meets the $20,000 threshold for 2023.

But that changes for 2024. The threshold for 2024 is $5,000. The goal is to move the threshold to $600.

5) Is a Tax Credit Better Than a Tax Deduction?

Generally, tax credits are deemed to be better than a tax deduction. Your tax liability is directly reduced with a a tax credit.

The effect of a tax deduction depends on your marginal tax bracket. For example, if you’re in the 10 percent tax bracket, a $1,000 deduction will reduce your taxable income by $100 (0.10 x $1,000). But a $1,000 tax credit will bring your taxable income down $1,000.

6) Can Medical Expenses Be Deducted?

Unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income (AGI) can be deducted. Some unreimbursed expenses include:

• preventative care
• surgeries
• medical treatments
• dental and vision
• prescription medications
• glasses, false teeth, hearing aids, etc
• psychologist and psychiatrist visits

You can also deduct travel expenses to receive medical care. These would include mileage, bus or plane fares, and parking fees.

7) Should I Itemize or Claim a Standard Deduction?

When the Tax Cuts and Jobs Act (TCJA) of 2017 passed, this decision became easier. Under the TCJA, you don’t itemize if the standard deduction saves more money.

The TCJA doubled the standard deduction. The standard deduction for 2023 is $13,850 for single and $27,700 for those taxpayers filing jointly. It increases to $14,600 for single and $29,200 for joint filers in 2024.

Unfortunately, the TCJA sunsets on December 31, 2024, and the standard deduction will return to its former amount.

8) What Does a CPA Do vs. an Accountant?

An accountant has a bachelor’s degree in accounting. A CPA has a degree, additional education, experience, and examination to become certified.

An accountant and CPA perform the same functions, but the government recognizes a CPA as someone who is credible and an expert in their field.

Only a CPA can prepare an audited financial statement or file reports with the Securities and Exchange Committee (SEC).

Both CPAs and accountants can represent clients in front of the IRS.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.