Here are some tips to consider in 2023 tax filing season:
It’s time to file your tax return, and many of us are facing smaller refunds, shrunken tax credits and deductions — right as inflation and higher debt loads are biting into our budgets.
The IRS starts accepting tax returns for 2022 earnings on Jan. 23, and it will issue tax refunds in the weeks and months that follow.
And some of us could be in for a surprise.
People should absolutely expect smaller tax refunds this year, and some people might even owe the government money.
File online, or face the dreaded backlog
The IRS says people who file electronically should expect to get their refund within around 21 days if they choose direct deposit and their return has no issues.
The other option is less fab: People who submit returns on paper are more likely to join the agency’s large backlog.
The stimulus is gone
Because of the government response to the COVID-19 pandemic, many Americans got a $1,400 stimulus check in 2021, the third of such payments. No more for stimulus and no more reporting requirements this year, its all history now.
How did the child tax credit change?
For this tax season, many families with two children under 6 years old won’t be able to count on an extra $3,200 worth of tax credits that helped them last year. That’s because while pandemic legislation provided $7,200 in combined tax credits for two kids under 6 in the last tax season, that same family is now looking at $4,000 in credits.
Poverty and uninsured rates drop, thanks to pandemic-era policies
The child tax credit and related pandemic policies had a large impact — the U.S. Census Bureau said the measures sent child poverty rates down “46% in 2021, from 9.7% in 2020 to 5.2% in 2021,” to the lowest child poverty rate on record, based on the Supplemental Poverty Measure, which was introduced just over a decade ago.
A special charitable deduction break also lapsed
In general, taxpayers can only deduct donations to charity from their taxes if they itemize deductions, rather than take a standard deduction. A special temporary tax break changed that for returns covering 2021.
It was a $300 deduction for people who don’t itemize and a $600 deduction for married couples in 2020 and 2021 tax years.
On the investment gains front, 2022 was a wild year, obviously, on Wall Street and the Dow was down, the Nasdaq was down, so people might be thinking, ‘Why am I having a bigger tax bill to pay because of investment gains? I didn’t have any investment gains.
But the markets’ volatility forced many mutual funds to sell more holdings than they normally would, including profitable ones. They then distributed those gains. And if investors hold the fund directly, rather than in a tax-sheltered account like a Roth IRA, they’ll have to pay taxes on their gain.
Anyone in that position, she added, should try to offset their capital gains. It would help if they sold any losing stocks, to balance out the winners.
Do I need to worry about Venmo, PayPal and Cash App?
Millions of Americans could be excused for freaking out a bit when the government announced it would start requiring Venmo and other peer-to-peer payment apps to report income for goods and services worth $600 or more annually — a sharp drop from the previous threshold of $20,000.
Things eased a bit last month when the IRS postponed the plan. But as financial experts note, taxpayers are still obligated to report their full income on their tax returns, whether they’ve received a 1099-K form or not.
It’s understandable for those workers to feel relief about the delay, she said, but they should use this year to get used to the idea that the rules are changing.
What can regular people do to help themselves?
The general deadline to file your 2022 tax returns is Tuesday, April 18. That’s because Washington, D.C.’s Emancipation Day holiday falls on April 17.
If you go to IRS.gov, if you made less than $73,000 in 2022, you can use IRS Free File … it basically does your taxes for you at no cost.
How’s the IRS doing this year?
Overall, the IRS is in a better position now than one year ago — but customer service and the lingering effects of a backlog are “the elephant in the room.” That’s according to National Taxpayer Advocate Erin Collins, who heads the official IRS watchdog agency.
Here’s what that elephant looks like:
- Millions of people who filed paper tax returns or saw their e-filed returns suspended for review had to wait eight-and-a-half months or longer for refunds;
- In 2022, less than 13% of callers to the IRS reached someone who could help them (11% did so in 2021);
- Callers’ average time on hold rose — from 23 minutes in 2021 to 29 minutes last year;
- Identity fraud remains a huge issue. On average, the IRS said in mid-December, “it is taking about 360 days to resolve identify theft cases” and issue a refund.
If you’re looking for a company to help you prepare and file your taxes this year, look no further than KB CPA Services P.A.
Our team is here to help you through every step of the process, from identifying your deductions to filing your returns and getting them processed by the IRS. We’ll make sure that you get all of your money back so that you can use it to pay down debt or save up for the future!
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