Tax Updates for 2023
Even though tax season is just around the corner, it’s always early enough to begin making financial preparations for the upcoming changes to tax laws in 2023. Several changes are crucial for taxpayers to be aware of as they plan retirement contributions and budget for 2023, even though they won’t affect taxes due on April 18 for 2022.
The end of January 2023 marks the beginning of tax season. Around that time, a W-2 form from your employer ought to be in your mailbox. You can also find your W-2 online since many employers use a digital payroll system for direct deposit. Additionally, freelancers need to keep an eye out for a 1099 form from each customer.
1.Why is the April 18 tax filing deadline in 2023 rather than April 15?
Because the standard deadline of April 15 falls on a Saturday. The IRS moves the deadline to the following business day because it falls on a weekend. The IRS’s headquarters are in Washington, D.C., and Monday, April 17, 2023, is Emancipation Day, a recognized holiday in that city.
Patriot’s Day, a holiday in Massachusetts, is also celebrated on April 17. Due to everything mentioned above, the due date for federal income tax returns (typically Form 1040) will be Tuesday, April 18, 2023. Most states also typically adhere to this schedule for state income tax returns.
You should seek the counsel of a tax expert if you experienced significant income changes this year, had a child, got married or divorced, retired, purchased a home, changed investments, or underwent any other truly substantial life changes. Better would be sooner. Such a professional can still provide insightful counsel that genuinely affects your taxes.
2.What to Know about Income Tax Brackets?
Every year, the Internal Revenue Service (IRS) modifies the thresholds that apply to many federal income tax brackets to reflect inflation. In 2023, with inflation expected to reach a four-decade high, the adjustments will become more apparent.
Because the income tax rates are graduated, a taxpayer’s earnings are subject to higher rates the more they earn. The monetary limits for each bracket are as follows:
- 10% for single taxpayers with an income of $11,000 or less
- 12% for income over $11,000
- 22% for income over $44,725
- 24% for incomes over $95,375
- 32% for income over $182,100
- 35% for income over $231,250
- 37% for income over $578,125.
The dollar amounts for each bracket may be doubled for married couples filing jointly.
3.High Standard Deductions Update
You can choose between itemizing your deductions or taking the standard deduction when filing your taxes (calculating your deductions one by one). Itemizing becomes more challenging but still advantageous in case your itemized deductions are more than the standard deduction.
To account for inflation, the standard deduction increased for tax years 2022 and 2023.
Standard Deduction – 2023
- Single = $13,850
- Married filing jointly = $27,700
- Married filing separately = $13,850
- Head of Household = $20,800
4.What is New for Tax Season 2023?
4.1.Reporting requirements for Form 1099-K changed.
The Form 1099-K, third-party network transactions and payment card should be provided to taxpayers who received third-party payments in the tax year 2022 for goods and services that cost more than $600.
A single transaction in the tax year 2022 that costs more than $600 may necessitate the third-party platform issuing a 1099-K. This change will result in a significant increase in the number of taxpayers who receive 1099-Ks.
4.2.Some tax credits are back to where they were in 2019.
As a result of the expiration of many ARPA and pandemic-era credits at the end of 2021, many tax credits have returned to their pre-pandemic levels. The Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit are among the affected credits. Many taxpayers will probably receive a refund that is significantly less than they did the previous tax year as a result of these changes.
4.3.There are no charitable deductions above the line.
One of the most significant changes for the 2023 tax season is the amount of charitable contributions that can be deducted. Unfortunately, the modifications eliminate the majority of the additional benefits provided in 2021 due to the pandemic.
Taxpayers could deduct up to $600 in charitable donations from their income during COVID. In 2022, those who take the standard deduction CANNOT deduct charitable contributions above the line because that amendment has expired.
5.When will the IRS begin receiving tax returns for 2023 and processing refunds?
The final week of January is typically when the IRS begins to accept tax returns. Therefore, those who filed their taxes early and are entitled to a refund may do so as early as mid or late February. However, while the IRS verifies their eligibility for these credits, taxpayers who claim the Earned Income Tax Credit or Child Tax Credit typically experience a one-month refund delay.
The Covid-19 pandemic significantly impacted the previous two tax filing seasons, and the IRS extended both deadlines; however, the IRS is not anticipated to extend the tax filing deadline for 2023.