Unless you’re an accountant with a passion for work, it’s hard to imagine that anyone enjoys tax season. Like several of the last years, 2022 threw some curveballs that could make this year’s returns a chore to settle up with the IRS.
Here’s a look at a few sticky situations that taxpayers across the country might find themselves staring down — and what to do about it if you’re one of them.
Expecting a Larger Refund But Getting a Smaller One
The 2023 tax season is going to look a lot different than 2022, namely smaller when it comes to refunds. There are two key reasons for this:
- Economic impact or stimulus payments didn’t go out in 2022, meaning that taxpayers shouldn’t expect a bump in their 2023 tax refunds.
- Child Tax Credits (CTC) and charitable contributions, which could be classified as deductions or expanded tax credits in the last few years, will return to the amounts that were in place prior to COVID-19.
Expert Advice: Make Use of All Tax Credits and Deductions You Qualify For
“It is in your best interest to make use of all of the tax credits and deductions to which you are entitled,” said Derek Bruce, operations director at Skills Training Group.
As always, it’s good to look at your personal financial situation and review the best options for you and your family.
“Your specific circumstances will determine whether you should claim a standard deduction or itemize your tax deductions,” said Bruce. “Help is available from tax professionals.
“[If you can], make use of the recommendations provided by the IRS for energy tax credits.”
Individual Taxpayers Will Need To File Form 1099-K
There is a first time for everything, even if you have been filing taxes for a while. This tax season, if you are an individual taxpayer you might have to fill out Form 1099-K, something that could be brand-new territory for you.
A 1099-K records only your gross amounts, but does not include your net transactions, making it complicated when you see the actual income you took home matched up against what’s listed on the 1099-K. Business expenses – like payment processing fees or equipment – also aren’t included even though you might be able to itemize them as deductions.
Expert Advice: Double- and Triple-Check the Amounts Reported on Your 1099
Wendy Walker, solution principal for Sovos and chair member on the Information Reporting Subgroup of the Internal Revenue Service Advisory Council (IRSAC), advises taxpayers to “be mindful of gross amounts reported on 1099 forms.”
“If a small business is using online platforms to source work, they’ll need to be mindful of the discrepancy in the gross amounts reported on Form 1099-K versus what they actually received from the platform company,” Walker said.
“The amount reflected on their 1099-K likely includes business-related expenses including fees and credits. Small businesses should get a copy of all the transaction details that make up the amounts reported on the 1099 so that they can properly identify and account for deductible business expenses.”
This can extend into digital payment systems such as Venmo and Zelle, which Walker warns not to treat differently if you are using them for business purposes.
“Zelle is an ACH payment network…[which is] not subject to 1099-K reporting,” Walker explained. “Venmo is considered a third-party payment network for 1099-K reporting purposes. The IRS may still get reporting on at least some of your business transactions on Zelle. If there are any business-to-business payments over the Zelle network, the business that makes the payment must provide the receiving business and the IRS with either a 1099-NEC for non-employee compensation or a 1099-MISC for other expenses.”
Tax Laws Changed on Multiple Fronts, Including With Crypto
The 2023 tax season will also see numerous laws and regulations in flux, causing potential for confusion amongst the taxpaying public. Amongst them, the Tax Cuts and Jobs Act (TCJA), passed in 2017, came with an expiration date for 2025.
Potential changes to tax laws might affect how taxpayers file their returns this year, especially when it comes to multiple income streams like cryptocurrencies and any overseas income.
Expert Advice: Keep Track of All Your Financial Transactions
Daniel Smith, CTA at Ledask, recommends staying up to date with the tax code and laws, as well as keeping track of your own records throughout the year so as not to solely rely on the IRS.
“To handle these issues, taxpayers should stay informed about the latest tax laws and regulations,” suggested Smith. “Keep accurate records of their financial transactions, and consult with a tax expert when necessary.”
As for cryptocurrency, Smith says you’ll definitely want to keep as accurate of tabs as possible when you file this year.
“The IRS has been increasing its efforts to track and tax cryptocurrency transactions, which can be challenging for taxpayers who may not fully understand the tax implications of cryptocurrency trading,” said Smith. “Taxpayers may need to keep track of their cryptocurrency transactions and report them accurately to avoid penalties and fines.”
This goes for international revenue streams, too.
“If a taxpayer earns income from foreign sources, they may face complex tax issues related to foreign tax credits, tax treaties and other international tax rules,” cautioned Smith.
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