4 Important Things To Expect for Your 2023 Tax Return
There have been some big updates to U.S. tax laws recently, and taxpayers should know about these changes when they file their returns this year. “With the tax codes increasing in complexity, this becomes more difficult for the average American taxpayer to follow without the help of a tax professional,” said Richard Lavina, CPA and CEO of Taxfyle.
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Curious what those changes are? Here’s what to expect when filing taxes in 2023.
Larger Standard Deduction
Lavina noted that some of the changes to how Americans will file their taxes for the 2022 tax year relate to the rampant inflation we faced. “To account for this, the IRS increased the standard deduction for tax filers,” he said. This is a set dollar amount that reduces your taxable income if you choose not to itemize.
Married couples who claim the standard deduction will receive $25,900, while single filers can claim a standard deduction of $12,950. If you file as head of household, you’ll receive a standard deduction of $19,400. “The IRS also adjusted the income thresholds on long-term capital gains tax rates and tax brackets to try to make up for the price rise we’ve felt,” Lavina added.
Tax Credits Revert to Pre-Pandemic Levels
Several tax credits were expanded in 2021 to help alleviate the financial hardships caused by COVID-19. However, those changes were temporary, and have reverted to pre-pandemic levels for tax year 2022. “This means that some taxpayers will likely receive a significantly smaller refund compared to previous years,” said Varsha Subramanian, a CPA with FlyFin AI.
For example, the extended credits and limits on amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit are back to pre-pandemic rates.
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No Above-the-Line Charitable Deductions
Subramanian explained that during the pandemic, taxpayers were allowed to deduct up to $300 in charitable donations ($600 for married couples filing jointly), even if they took the standard deduction. “Usually, charitable deductions are available for taxpayers choosing itemized deductions,” he said.
For 2022 tax returns, however, that above-the-line deduction for charitable donations has been reversed. Now, you can only claim this deduction if you itemize your taxes.
New Reporting Requirements for P2P Payments Delayed
“One change that was talked about toward the end of 2022 was the heavily decreased reporting threshold for third-party payments,” said Armine Alajian, a CPA and founder of the Alajian Group.
In other words, those who use peer-to-peer payment apps such as Venmo and CashApp to conduct business transactions were told they’d receive a 1099-K form if their transactions totaled $600 or more. Alajian called this “a drastic change from the original rule of 200 transactions worth an aggregate above $20,000.”
The good news: In early January, the IRS announced a delay in this change. That means taxpayers don’t have to worry about this new rule when filing 2022 taxes. But it is something to keep in mind for next year.
What To Know About Preparing Your Return This Year
In addition to staying up to date on tax changes that impact your 2022 return, here are a few tips to keep in mind so that tax season goes smoothly.
Have the correct information before tax filing
Having accurate records and documents in place before sitting down to file your taxes is key, according to Subramanian. Not only will it save you time, but you’ll ensure your return is correct, which means it’ll be accepted by the IRS and any refund due will be paid out faster.
Be aware of tax day deadlines
April 18 is the big one this year. However, there are other dates to keep in mind if you need to file an extension, pay quarterly estimated taxes and more.
Know your tax credits and deductions
“It’s crucial to be aware of your tax credits and deductions, as tax credits outright reduce your tax liability and those deductions reduce your taxable income,” Subramanian said. Don’t miss out on a refund because you didn’t claim an important write-off.
Hire help if needed
If you aren’t sure what tax write-offs you qualify for, or are confused about any part of the tax filing process, work with a tax professional who knows the ins and outs. Paying for help now can save you from expensive tax mistakes down the line.
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