The new year is just days away, which means it’s time to get serious about preparing for your 2023 tax filing. No matter how much experience you have filing taxes, each year brings new concerns as tax laws change and your financial position may also change.
One fundamental way to prepare for the upcoming tax season is to understand any recent changes to tax laws that may impact your 2024 filing. These changes include:
- Standard deduction: The standard deduction changes regularly to adjust for inflation. Since inflation has been higher than normal, it makes sense that there would be a significant change to the standard deduction. For single filers, the standard deduction will increase by $900 to total $13,850. Those who are married and file jointly see an increase to $1,800, bringing their standard deduction to $27,700, and head-of-household filers can expect a $1,400 increase, raising their standard deduction to $20,800.
- IRA & 401(k) contributions: The limits for retirement account funding caps have also changed for 2023 tax returns. A breakdown of these changes by account type includes:
- 401(k) limits increased by $2,000 and are capped at $22,500
- Simple 401(k) limits are now $1,500 as they were increased by $1,500
- Taxpayers aged 50 and older can contribute an additional $1,000 to their traditional and safe harbor 401(k) plans. The new cap is $6,500 for these types of plans and $3,500 for Simple 401(k)s (which were increased by $500).
- Roth IRA contribution limits were increased by $500 and are capped at $6,500 for 2023.
- Earned income tax credit: For 2023, the EITC varies between $600 and $7,430, depending upon income, the number of dependents, and filing status.
- Child tax credit: The COVID-19 pandemic saw child tax credits being fully refundable. For 2023, this credit goes back to $2,000 per qualifying dependent for filers with a modified adjusted gross income limit of $200,000 or less ($400,000 if married filing jointly). If your income exceeds this amount, the credit is reduced by $50 for every $1,000 over the threshold.
- Health Savings Account (HSA): The annual limit for Health Savings Accounts was increased by $200 from 2022 for single filers. For a single person, the cap is now $3,850. For families, the increase is $1,000, making the 2023 cap $7,750.
- Student loan interest deduction: With student loans going back into repayment status, you can once again deduct interest charges, up to $2,500, on your 2023 tax return. To qualify for this, you must have a modified adjusted gross income of less than $90,000 for single filers, widow(er)s, and head of household filers, or $180,000 for those who are married filing jointly.
- Annual gift tax: The 2023 annual gift tax was raised to $17,000 or $34,000 if married.
- Adoption tax credit: The 2023 adoption tax credit was raised by $1,060, thus making the total credit amount $15,950. Those with an income of $239,230 or less receive the full credit. Those with an income between $239,230 and $279,229 will get an adjusted credit, while those with incomes at or above $279,230 are ineligible for this credit.
- 1099-K Payments/transactions: The American Rescue Plan of 2021 changed reporting for self-employed individuals who receive payments from third-party organizations, such as Venmo, CashApp, and PayPal. While this change was supposed to be effective for 2022 tax filings, it was delayed at the last minute, and it was also delayed again in November 2023. Therefore, it will not impact 2023 tax filings. Those who are self-employed and receive these types of payments must only report the aggregate of more than $20,000 in payments from over 200 transactions.
Understanding these changes and how they may impact your 2023 filing is crucial in preparing for the 2024 tax season. Another key step in preparing for the upcoming tax season is to start collecting all of the required documentation. Some of these items won’t be sent to you until January, so if you don’t already have them, keep an eye out for them. Items that you will need include:
- W-2 forms from employers
- 1099 forms for additional income, such as freelance or contract work
- Receipts for charitable donations
- Documentation for any deductions or credits you plan to claim. Examples may include childcare statements or student loan interest statements.
- Social Security information for yourself and any dependents
- Unemployment compensation
- Digital asset documentation
The tax season will be here before you know it. Unfortunately, filing taxes can be a complex process, and without working with an accountant or tax service professional, you may be at risk of being audited. To learn more about working with a tax accountant, contact Parker Business Consulting today!
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.