Matthew Frankel, certified financial planner and contributing analyst with The Motley Fool, joined Cheddar News to discuss what the IRS' guidance is on state stimulus payments.

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What The IRS Says About State Relief Payments for Tax Season

Last week the I. R. S. Told millions of people who got state tax rebates or payments last year, pause your filings. It did this to figure out whether those subsidies are subject to federal tax as well. We finally got some guidance. Our next guest is going to help us break this guidance down Matthew frankel is a certified financial planner and contributing analyst at the motley fool. Matthew, there's so much confusion out there right now about whether to file or not. What is the I. R. S. A. Well, so now they're saying that all of these states, which there are 21 in all that gave one time stimulus payments in 2020 to the I. R. S. Is now saying that these are not taxable. They're saying they do not need to be reported on federal tax returns. And in most cases these were returns of these were considered state tax refunds um and to benefit the greater good of the state. So it's not surprising that they issued this guidance, it's kind of surprising that they created so much confusion about it. So is this guidance categorical? Does this mean that all state relief checks are not subject to federal attacks? Or are these checks just an exception? So these are an exception there there this is just for the 2022 stimulus checks And the I. R. S. Says out of the 21 1 states, 17 of them are completely tax exempt the other four, which is Georgia, massachusetts, south Carolina and Virginia are tax exempt for most people as long as it represents a refund of state taxes paid, For example, if people in those states didn't pay any federal or any state taxes at all and it was kind of extra stimulus, then it might still be considered federal tax bill in those four states. So it really depends on which states you're living in. What are your best tips right now for filing your taxes this season? Well, I would say number one file as soon as possible. Not only will you get your refund quicker? Uh, it's the best way to prevent identity theft at tax time, which is a big issue and getting worse by the year. Um, take advantage of free tax software. If you make less than $73,000 a year, you can get name brand tax software absolutely free. Uh, number three, make sure that your numbers are accurate. Um, there are a few bigger ways to set off red flags at the I. R. S. Than to report a different income number Then your employer reported, even if it's just a typo on your part and don't be surprised if your refund is somewhat smaller this year. A lot of the pandemic era tax benefits like the expanded child tax credit. The above the line charitable deduction, a lot of those expired in 2022 and a lot of people aren't aware of that. So don't be surprised if you don't get as much as you did last year. So refunds could be smaller. What about for investors? Any tax changes for investors? Um, no big tax changes. A couple of tips are one. A lot of people are sitting on stock market losses right now. I know you were just talking about that on your show. Um, it could be, if you sell those a lot, if you sell losing positions, a lot of people don't realize you can deduct up to $3,000 of losses against your other ordinary income. Um, so that's one tip for investors and it's not too late to contribute to a retirement account for 2022 and potentially lower your tax bill for last year. You can do that up until tax day. So that's a good thing so that you can actually contribute now and still save money. Great stuff. Thank you. So one of the few ways, one of the few ways Matthew frankel certified financial planner and contributing analyst at the motley Fool