Tax Prep: What to Consider When Filing Your Taxes in 2023

Changes in tax laws or delayed tax filings can make tax season even more overwhelming and confusing. With continuous changes in tax laws, it can be difficult to keep up with the latest developments. 

The beginning of the new year is an important start to the tax season, and it’s crucial to prepare for it. Here’s what you need to know for your 2023 taxes and how to support your business this tax season. 

1099-K Changes for 2023 

There are new changes to reporting for Form 1099-K in the new year, affecting mostly gig and independent workers. Here’s some key items for taxpayers to consider before they file taxes this year.

  • The new reporting rules for Form 1099-K apply to payments made to third parties for services or goods that exceeded $600 in tax year 2022. Taxpayers should receive these forms by January 31, 2023.
  • Income from various sources, such as part-time work and the sale of goods and services, is still taxable. Taxpayers have to report all of this income on their tax returns unless it’s excluded by law.
  • In the past, Form W-9 forms were only issued for transactions involving third-party networks if the total amount of transactions was over $200 for the year, and the aggregate amount was over $20,000. The American Rescue Plan Act of 2021 lowered the threshold for these types of transactions.
  • A single transaction exceeding $600 can now require a third-party platform to issue a W-2 form. This type of payment is not taxable when used for personal expenses, and it can be used for gifts or reimbursements from friends and relatives.

Other Tax Changes for 2023 

There are a few other changes in the tax code for 2023 that you should be aware of when preparing your taxes. These include increases in deductions, credits, and other benefits such as the Child Tax Credit and Earned Income Tax Credit (EITC). 

It’s important to consider any tax benefits available through your employer or state government or employer-sponsored retirement accounts like 401(k) plans. 

Deduction Increase

The most significant change for 2023 is that the standard deduction has increased. This means that if you use this method of filing rather than itemizing your deductions, more expenses will be covered under this set amount. 

The standard deduction for 2020 was $12,400 for individuals and $24,800 for married couples filing jointly. This increases to $12,550 for individuals and $25,100 for married couples filing jointly in 2021. This means that more taxpayers will be eligible for the standard deduction instead of itemizing deductions. Other notable changes include: 

Earned Income Tax Credit

• The Earned Income Tax Credit (EITC) has been expanded; now those with no qualifying children may qualify if they are between 21-24 years old or over 65 years old. 

High-Income Deductions

• There is an increase in the phase-out range for itemized deductions of high-income taxpayers; those with income over $389,000 ($582,000 for joint filers) will have their itemized deductions limited. 

Alternative Minimum Tax Exemption

 • The alternative minimum tax (AMT) exemption amounts have increased from 2020 levels and are adjusted each year for inflation going forward. 

Education Credits

 • Education credits such as the American Opportunity Credit and Lifetime Learning Credit are available again; these credits were suspended from 2018 – 2021 due to other tax law changes but have since been reinstated starting in 2022.   

Things to Keep In Mind When Filing Your Taxes   

Filing taxes is one of the most important financial tasks that you have to do every year. It can be complicated, time-consuming, and sometimes frustrating. However, it’s important to understand the new tax regulations and changes that are in place for the upcoming tax season so you can prepare accordingly. Here’s what you need to know about filing taxes in 2023 and how to get ready. 

Regardless of whether there are any changes in tax laws or not, there are some things that remain constant when it comes to filing your taxes. Here are a few key points to remember: 

  • Make sure all relevant documents are gathered – This includes W2 forms from employers, 1099 forms from contractors/freelancers/self-employed individuals, bank statements showing interest earned throughout the year, etc.. Having all this information ahead of time will make filing much easier! 
  • Understand how investments affect your taxes – If you invested money throughout the year or received dividends from stocks/bonds/etc., these transactions must be reported on your tax return as income or capital gains (depending on the type of investment). Be sure to consult a financial advisor or CPA before filing so that you understand how investments affect your overall tax liability! 
  • Consider taking advantage of tax credits – Many taxpayers overlook opportunities to maximize their refund by taking advantage of available tax credits like education credits or child care expenses credit. Be sure to explore all options before submitting your return!   

When To Start Planning 

Now is a great time to start thinking about how you’ll file your taxes for 2023. 

It is also a good time to review any changes you may need to make or double check that all information from employers or other sources is accurate before filing. It’s also important to know when the deadline is so that you can plan ahead – this year it falls on April 15th! Additionally, it’s best practice to start gathering all documents related to income and expenses now so that everything is ready by the time it comes time to file taxes next year.  

With tax season quickly approaching, now is the perfect time to start researching any applicable changes in tax laws or regulations. Be sure to review any credits or deductions available through your job or state government. Also, make sure all income documents are accurate before filing your return.