The 2023 tax season has officially started. And whether you like to file those returns on your own or use the services of a tax preparer, there are a few changes you should be aware of to ensure you have all the information you need to complete an accurate return — and get back what you’re owed.
Almost any tax professional will tell you to take advantage of tax credits to help reduce the amount of income tax owed, and one of the more popular for the 2022 tax season was the Child Tax Credit. In 2021, it was expanded from $2,000 per child to $3,600 per child under the age of 6 and up to $3,000 per child between the ages of 6 and 17. However, those amounts have been reduced for this upcoming tax season, returning to the original credit of $2,000 per child.
Similar changes can also be found in the child and dependent tax credit, which can be used to offset the costs associated with both childcare and adult-dependent care. Much like the Child Tax Credit, it’s reverting to its original cap of up to $3,000 in expenses for one qualifying person and up to $6,000 in expenses for two or more qualifying dependents.
Anyone looking for a tax breaks 2022 knows the advantage of charitable donations. Unfortunately, it was much easier for everyone to claim charitable contributions for the 2022 tax season. You could take an above-the-line deduction for charitable donations of up to $600. That’s now changed if you opt for a standard deduction. It’s simply no longer available, which will have some impact on your tax return 2022.
Those in the gig economy should prepare for the changes to the reporting threshold for third-party payments, namely for Form 1099-K. In previous tax years, it applied to individuals with more than 200 transactions received through payment apps, such as PayPal, Square, or Venmo, worth over $20,000. And though the new rule has been delayed, which drops the threshold to just $600 for any number of transactions, people may still receive the form from a third-party payment network.
However, personal transactions don’t apply, as would be the case for reimbursing someone who purchased you a meal or tickets to a show. Taxes are owed only on the profits of transactions related to income from part-time work, the sale of goods, and so on. If, for example, you bought a product for $200 and then sold the item for $300, the $100 profit would be taxable.
If you haven’t yet received the form, don’t expect one, as the date for when are 1099 due 2022 is January 31, 2023 — that is, of course, for the 1099-K. Other 1099 forms may arrive as late as February 15, 2023.
The eligibility for the EV Tax credit is also going through some changes. A tax credit of up to $7,500 can now be claimed on what’s been described as “clean vehicles,” as well as certain used EVs. If you took possession of a clean vehicle during the 2022 calendar year, that vehicle might be eligible for the EV Tax credit. Even if the purchase was made before August 16, 2022, when the Inflation Reduction Act (IRA) went into effect, it still pays to review the eligibility rules, assembly requirements, and the documentation necessary to take advantage of this tax credit. In some instances, for example, you will need a written sales contract as proof of the EV purchase, particularly those occurring before August 16th of last year.
As you may already know, the American Rescue Plan Act of 2021 (ARPA) expanded eligibility for the premium tax credit, which helped cover the cost of those premiums for health insurance acquired through the Health Insurance Marketplace. However, the expansion was only temporary, allowing individuals with household incomes above 400% of the federal poverty line to tax advantage of the credit for a limited time. The expanded eligibility applies for the 2023 tax season, as well. You may still be eligible.
Another change to anticipate for the 2023 tax season involves the Earned Income Tax Credit. The expanded eligibility has been removed, reverting to the previous age requirements of between 25 and 64 without children to claim the credit. No longer can those between the ages of 19 and 24 or 65 and over tax advantage of this benefit. Also, your previous year’s income can no longer be used for qualification purposes.
Please let us know if you have any questions or concerns about the 2023 tax season, let us know. We can match you with a tax preparation professional that can help take the guesswork out of filling out your 2022 return.
