Tax filing season officially starts today, Monday, Jan. 29 — marking the first day that you (or your tax preparer) can submit your 2023 federal tax return for the IRS to accept and process.
To avoid being surprised by new IRS guidelines or how changes in your financial life will impact your taxes, here are a few key points to know:
You may benefit from taking the standard deduction
A key consideration when filing taxes is whether to claim the standard deduction or itemize deductions. Most taxpayers take the standard deduction, and even more may do so this year, given the increase in the amount.
The standard deduction for married couples filing jointly for 2023 is $27,700, up $1,800 from 2022. For single taxpayers and married individuals filing separately, it’s $13,850, up $900 from the year before.
“Even though the standard deduction went up, what did not go up on the itemized side are things like the SALT cap rate,” said Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York, referring to the $10,000 limit on what taxpayers can deduct in state and local taxes on their federal returns.
The SALT cap was enacted as part of the 2017 tax overhaul.
“Some people who found it beneficial to itemize in the past may find it makes more sense to take the standard deduction in 2023,” said IRS spokesman Eric Smith. Before the 2017 tax reform, “the standard deduction, arguably, wasn’t such a big deal for higher-income taxpayers … it now can be for many taxpayers in these brackets.”
In 2022, about 30% of taxpayers with incomes of $1 million or more took the standard deduction, according to IRS data.
High earners more likely to owe taxes at filing
The Internal Revenue Services offices in Washington, D.C.
Adam Jeffery | CNBC
If you’re like most taxpayers, you’ll get a refund. According to IRS data, only about 26% of filers had tax due with their 2022 returns. However, the percentage was far more significant for high earners, with 46% of those with incomes of $1 million or more owing tax when they filed.
Missing estimated tax payments and failing to pay enough tax over the year has become extra costly. The Federal Reserve’s interest rate hikes have pushed up rates for interest-based tax penalties, too.
“People can lessen its impact by paying any tax due sooner, rather than waiting until close to the April deadline,” Smith said, adding the “calculation is based on a daily factor, so every day counts.”
Avoid interest and penalties
If you file a return by the April 15 deadline but don’t pay all taxes owed on time — or file for an extension but don’t pay your tax bill by that due date — you’ll have to pay a late payment penalty. The failure-to-pay penalty is 0.5% for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.
“It really does add up, especially for those taxpayers that have big balances,” Wilson said. If you pay the tax owed when you file your return on or near the Oct. 15 due date for extensions, “your tax bill is significantly more than what you would have paid if you just made some type of payment in April.”
Whether you want to get a refund quickly or you owe tax, experts agree it pays to gather and organize your W-2s, 1099s and other tax documents to file your return now.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
Credit: Source link
