Tax Season 2023 is Here
Now that spring has sprung and we’ve settled into the new year, it’s time for the next big event: tax season. Filing season began on January 23 and ends on April 18, meaning you need to file your taxes on (but ideally before) that date. If you request an extension, your new deadline falls on October 16. Almost 55 million Americans have already filed their taxes, and if you’re not one of that number, we’re here to help you get started.
As temporary benefits like stimulus checks and pandemic tax breaks fade away, filing in 2023 feels much like it did pre-pandemic. However, there are a few changes to be aware of, from adjusted tax brackets to increased standard deductions.
At Origin Bank, we know that tax season can be stressful. While we'll leave the advice and detailed information to the tax professionals, here are some basic updates to help you with the 2023 tax season:
What’s new this year?
1. Smaller tax refunds
In 2023, you can expect smaller tax refunds. But why? There are two main reasons.
First, taxpayers didn’t receive any economic impact payments last year, meaning that you won’t receive a stimulus payment in your tax refund check. Secondly, tax credits and deductions that were expanded during the pandemic, like charitable donation deductions and child tax credits, are reverting back to their standard amounts.
2. 1099-K changes postponed till next year
The IRS was slated to make big changes to the 1099-K form this tax season, but the tweaks have been pushed off until the 2024 season. However, if you’re a small business owner, gig worker, or self-employed person who gets paid via online payment processors, expect massive changes next tax season.
What are online payment processors? Essentially, they’re a service that allows users to send and request money quickly. While originally designed for peer-to-peer payments, many entrepreneurs have begun using these services to conduct business.
Online payment processor sites include:
• Cash App
If you own a small business or have a side hustle, you’ve always had to track and report your own income. But next year, the government plans to collect more tax dollars from people who receive income via online payment processors. Effective January 1, 2023, online payment sites have to issue 1099-K tax forms to sellers so they can report their income to the IRS.
This tax season, you aren’t required to fill out a 1099-K form unless you have over 200 transactions via online payment processors that add up to over $20,000. However, in 2024, the rules are changing, and the threshold has been lowered to just $600 with no transaction minimums.
While these changes aren’t supposed to affect one-off transactions like selling your bike on Facebook Marketplace, mistakes happen and it’s possible that you’ll experience a 1099-K error next tax season, so stay vigilant.
3. Gas mileage deductions
While gas prices are steadier now, they were surging throughout 2022. To help taxpayers deal with sky-high fuel prices, the I.R.S. made a change in the middle of the year, increasing how much taxpayers can deduct for gas mileage. If you utilize the mileage deduction for business reasons, note that the mileage rate rose 4 cents. That means for every mile driven from July 1 to December 31, 2022, the mileage rate is 62.5 cents per mile, and 58.5 for January through June.
If you take the deduction for medical reasons, the rate also rose 4 cents in the second half of the year, increasing from 18 cents to 22 cents. This rate also applies to moving expenses for active military members.
Note that you can only take the mileage deduction if you are a business owner, self-employed, in the Armed Forces reserves, a government official, a qualified performing artist, a volunteer, or a person traveling for medical appointments.
4. Savings and tax bracket changes
The I.R.S. made two big changes this tax season in an effort to ease inflation: adjusting savings caps and shifting tax brackets.
Now, you can put more money into your pre tax retirement accounts. While the limit was $20,500 in 2022, you can now add up to $22,500. The I.R.A. cap is also increasing by $500.
But that’s not the only thing that’s changed – tax brackets have, too. If you fall into the 24 percent federal tax bracket, that rate will only kick-in for single incomes greater than $95,375 or $190,750 for married joint filers. That’s an increase from $89,075 for single individuals and $178,150 for married couples in 2022. Learn what other brackets were also affected in this IRS article.
Things to do before tax filing
1. Organize your paperwork
Whether you're preparing your own filing or hiring a tax professional, you need to organize your paperwork so you can make the most of tax deductions and tax credits.
The best way to ensure that everything is ready for tax season is to keep your records organized all year long. That way when tax season comes, you won’t be rifling through drawers or frantically clicking through files to find the necessary information – it’ll be right at your fingertips.
By getting ahead, you’ll never be behind, and you won’t be stressed out when tax documents start rolling out in January. But if you’re frenzied and rushing through your taxes, you’re more likely to make a mistake.
And if you hire a tax professional to handle the filing, preparing early also helps them, giving them more time to ask questions and request necessary information. If you need a refresher, here are the key documents your accountant or other tax professional will need:
• Proof of identity
• Business tax ID
• Financial records
Relationship banking that helps you prepare
In order to file your taxes effectively and efficiently, you need to be aware of changes to tax laws and understand how they may impact your business or livelihood.
For example, understanding the 1099-K changes on the horizon will help you prepare for next year’s tax season. This way, instead of being blindsided by new forms and added reporting requirements, you’ll be able to breeze through filing because you know what to expect.
Whether you’re in the midst of tax filing or preparing for next season, tax prep can feel overwhelming. To stave off the stress, it helps to get your finances in check. Every small step you take to get organized and plan ahead will help you save money and frustration.
At Origin Bank, we’re proud to offer tools that make managing and organizing your finances easy, like our Personal Financial Management tool that helps you make a budget and automate your bill payments. Check out our Personal Banking resources to learn which services best fit your unique needs and goals or contact one of our Trusted Advisors for personalized assistance. And if you need more ideas on how to reduce the tax-season hassle, reach out to the Origin team today.
Origin Bank does not provide tax, legal or accounting advice. This material is for informational purposes only. Please consult your tax, legal and accounting advisors for assistance.