It’s tax time: top tips for 2023 filing from BECU
Do you dread the coming of April 15? You’re far from alone. It is the deadline for most people to file their personal income tax return. And beyond going through your financial history from the 2023 tax year, there are always changes in the filing that can make the process more fraught and frustrating.
Fortunately, our partners at BECU have compiled a list of everything you need to know about changes that might affect your filing and return.
This tax filing season, there aren’t any new credits or itemized deductions to be aware of. The biggest change from last year is that…
You might find yourself in a different tax bracket
The IRS made some big adjustments to tax code provisions—including changing the income thresholds for the seven different tax brackets and setting higher standard deduction amounts—to account for the effects of inflation in 2022.
Without these changes, cost-of-living pay raises could push taxpayers into higher tax brackets or reduce the value of their credits, deductions and exemptions.
As a result of these adjustments, those who did not see their incomes increase in 2023 could find themselves in a lower tax bracket than when they filed their last returns.
Tax rates stayed the same this year for the seven different tax brackets, but income ranges increased for each bracket compared with income ranges for the 2022 tax year.
Look up where you fall within the seven tax brackets and income levels for single filers and married couples filing jointly in 2023.
Remember: You pay taxes for the portion of your adjusted gross income that falls within the bracket for each rate.
Standard deductions increased for 2023
The IRS also raised the standard deductions by about 7% from 2022 for those who don’t itemize.
- Married couples filing jointly: The standard deduction is $27,700, up $1,800 from 2022.
- Single taxpayers and married individuals who file separately: The standard deduction increases to $13,850, up $900.
- Heads of households: The standard deduction is $20,800, up $1,400.
Taxpayers who are 65 and older or blind, and don’t itemize, can get an additional standard deduction that’s $100 more than last year. It’s now $1,500 for married couples and $1,850 for single filers and heads of households.
Note: Those who take the standard deduction cannot deduct charitable contributions. This change was made in 2023.
Tax credits might reduce your tax burden
A tax credit, the IRS explains, “is a dollar-for-dollar amount taxpayers claim on their tax return to reduce the income tax they owe.”
Eligible taxpayers can use credits to reduce their tax bill, and potentially increase their refund.
Note: You must file a tax return to claim these tax credits.
- Earned Income Tax Credit: The maximum amount for qualifying taxpayers who have three or more qualifying children is $7,430 for 2023, up from $6,935 for tax year 2022.
- Child Tax Credit: This remains capped at $2,000 per qualifying dependent (under the age of 17), for those married taxpayers filing jointly with a modified adjusted gross income of $400,000 or less, or $200,000 or less for other filers.
- Adoption Credit: The maximum credit allowed is the amount of qualified adoption expenses, up to $15,950.
Other significant changes for this filing season
The IRS made several other adjustments to account for inflation, including:
- Alternative Minimum Tax: The new exemption is $81,300; it begins to phase out at $578,150. For married couples filing jointly, the exemption is $126,500; it begins to phase out at $1,156,300.
- Foreign Earned Income Exclusion: $120,000, up from $112,000 for tax year 2022.
- Estate Taxes: The basic exclusion from federal estate taxes is now $12,920,000 for someone who died during 2023, up $860,000 from 2022.
- Gifts: The annual exclusion increases to $17,000 for calendar year 2023, up from $16,000 in 2022.
Visit the IRS website for detailed info on deductions and credits.
Clean Vehicle Credit
If you bought a new plug-in electric (EV) or fuel cell vehicle (FCV) in 2023, you might qualify for a Clean Vehicle Tax Credit of up to $7,500. The credit is limited to certain EV and FCV vehicles manufactured in North America and is based on MSRP, sourcing of battery components and delivery date. There are also income limits. Your modified adjusted gross income (AGI) cannot exceed $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for all other filers.
Important dates
The 2024 filing season officially started on Jan. 29; that’s when the IRS started accepting and processing 2023 tax returns.
For most taxpayers, the deadline to file their federal tax return, pay any tax owed or request an extension to file is April 15, 2024.
If a taxpayer resides in a federally declared disaster area, they also may have additional time to file.
Getting a refund?
The quickest and best way to get your refund is to file your return electronically and use direct deposit.
In most cases, if there are no errors and the return is complete, you should have your money in less than 21 calendar days. Mail in your return, and it could take four weeks or more for the IRS to process it.
With direct deposit, you can have your refund sent to as many as three different accounts: A checking or savings account, a prepaid debit card or a mobile payment app.
The IRS says eight out of 10 taxpayers use direct deposit because it’s “simple, safe and secure.” This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.
To check the status of your refund, use the ”Where’s My Refund?” tool on the IRS website.
If you owe money, you don’t have to make any payment until the April 15 filing deadline. If you can’t afford to pay what you owe by April 15, check if you qualify for an IRS payment plan.
Free help and free filing
IRS Free File is available to individuals or families with an adjusted gross income of $79,000 or less in 2023. This year, eight commercial tax preparation companies are taking part in the program. DO NOT search the internet for “file my taxes for free.” You could end up on the website of a scammer. Instead, use the links provided by the IRS on its Free File page.
Each tax prep company participating in the program sets its own eligibility rules based on age, income and state residency. If you meet a company’s requirements, the provider cannot charge for preparing and filing your federal tax return.
Unless they obtain your informed and voluntary consent, IRS Free File providers are prohibited from disclosing or using your information for purposes other than preparing your tax return.
The IRS also offers free basic tax return preparation to qualified individuals through its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. These programs are available to taxpayers with adjusted gross incomes of less than $64,000, who are 60 years and older, have disabilities or speak limited English. At selected sites, taxpayers can input and electronically file their own tax return with the assistance of an IRS-certified volunteer.
New option for some: Direct File
The IRS will test its new Direct File system is a pilot program that provides a new way for low- to moderate-income taxpayers to file their returns directly with the IRS online for free. To take part, taxpayers’ incomes must be limited to W-2 wages, Social Security or unemployment benefits, and interest income of $1,500 or less. They must also take the standard deduction.
Direct File won’t be available for gig economy workers, those with business income, or those who itemize deductions or claim credits, such as Child and Dependent Care Credit, Saver’s Credit or Premium Tax Credit.
Direct File is being rolled out in phases. It’s expected to be widely available by mid-March in Washington state.
Need help?
You’ll find a variety of online tools at IRS.gov, as well as information on how to get ready to prepare your tax return.
The Interactive Tax Assistant tool provides specific answers to many common tax questions based on your individual circumstances. It can determine if you should file a return, your filing status, if someone can be claimed as a dependent, which income is taxable, what expenses can be deducted and qualifications to claim tax credits.
The IRS offers in-person service through Taxpayer Assistance Centers and its toll-free line, 800-829-1040. And its popular “Where’s My Refund?” tool is being redesigned to provide more information and reduce the need to call the toll-free line.
Create an IRS Online Account and you can securely access personal tax account information, including balance, payments and tax records including adjusted gross income.
Choosing the wrong tax preparer can have serious financial consequences. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help you find a preparer. The IRS also has tips for choosing a tax preparer and how to avoid illegal “ghost” return preparers.
The UW Integrated Service Center (ISC) also offers year-end tax resources, including accessing forms.
Changes ahead
The IRS has already announced inflation adjustments for tax year 2024—the return that’s due by April 2025. Income levels for the various tax brackets have been updated, and the standard deduction will also increase: $29,200 for married couples filing jointly, $14,600 for single taxpayer and married individuals filing separately and $21,900 for heads of households.
This was adapted from an article written by Herb Weisbaum for the BECU Blog.