As we approach the end of the year, it’s never too early to start thinking about taxes. Experts suggest getting organized by sorting paperwork and creating a checklist of needed tax forms.
Simple tax preparation tips can make the upcoming tax season much smoother. So, let’s take a moment to plan ahead and ensure everything is in order.
Certified financial planner Edward Jastrem, who serves as the chief planning officer at Heritage Financial Services in Westwood, Massachusetts, emphasizes the importance of being your own advocate.
Establishing a record-keeping system, as recommended by the IRS, ensures you’re well-prepared to file an accurate return and avoid delays.
Now, as you initiate the process, let’s explore some essential changes in 2023 tax filing to keep in mind for the upcoming season.
Changes in 2023 Tax Filing
1. Tax Brackets Got Wider
From all changes in 2023 tax filing experts note a significant change in federal income tax brackets compared to 2022.
Although the tax rates remained the same, there was approximately a 7% expansion in the brackets. This means a wider range of taxable income is accommodated in each tier.
The notable increase is attributed to higher-than-usual inflation, as highlighted by Kyle Pomerleau, a senior fellow and federal tax expert with the American Enterprise Institute.
2. Bigger Standard Deduction
Inflation played a role in raising the standard deduction for 2023, offering a benefit by lowering taxable income.
However, this increase poses a challenge for those seeking itemized tax breaks for charitable donations or medical expenses.
As one of the changes in 2023 tax filing, married couples filing jointly can claim a standard deduction of $27,700, up from $25,900 in 2022.
Single filers are eligible for a standard deduction of $13,850 for 2023, compared to $12,950 in the previous year.
The elevated standard deduction, introduced through the Tax Cuts and Jobs Act of 2017, is scheduled to expire in 2026, along with reduced tax rates.
During this interim period, there may be tax planning opportunities for filers, including options like accelerating income or considering Roth individual retirement account conversions.
This insight comes from Nicholas Gertsema, a Certified Financial Planner (CFP) serving as the CEO and wealth advisor at Gertsema Wealth Advisors in St. Joseph, Missouri.
3. Changes Regarding Form 1099-K
In November, the IRS postponed a reporting change for business payments made through apps like PayPal or Venmo for 2023.
Before this delay, a single payment of $600 would have triggered the filing of Form 1099-K, which reports such business payments to the IRS.
Describing 2023 as a “transition year,” the IRS maintained the previous threshold for reporting business payments via apps at more than 200 transactions with an aggregate value exceeding $20,000.
Despite this change, it’s crucial to note that business income remains taxable, as emphasized by Tommy Lucas, a Certified Financial Planner (CFP) and enrolled agent based in Orlando, Florida.
Following the law requires reporting income, even if a third party is not involved in the reporting process.
4. Energy Tax Credit
Changes in 2023 tax filing haven’t ended there. For those who bought a vehicle or made energy improvements to their home in 2023, there’s potential for tax breaks, as outlined by the IRS.
The clean vehicle tax credit has a maximum break of $7,500, and energy-efficient home improvements may qualify for even higher benefits.
When dealing with more intricate tax breaks, it’s essential to be well aware of tax filing tips before meeting with a tax preparer, advises Jastrem.