2023 Tax Return Update
January 1, 2024
As tax season arrives, Grants Pass Tax Service remains dedicated to serving as your reliable ally, offering guidance through crucial updates in tax laws to ensure a seamless and hassle-free filing experience.
When can I File my 2023 Tax Return?
The IRS typically opens in January, but Grants Pass Tax Service is ready to assist you in preparing your tax return in early January. Check back with our blog and Facebook page for updates on the IRS e-file open announcement.
Filing Deadline for 2023 Tax Return
The deadline is Monday, April 15, 2024, with extensions available. Individuals in areas affected by natural disasters may have later deadlines.
Standard Deduction for 2023
Single taxpayers and those married filing separately are eligible for a standard deduction of $13,850 ($27,700 for married couples filing jointly). Heads of households, on the other hand, can now claim a standard deduction of $20,800, reflecting an increase of $1,400 compared to the previous year. These adjustments aim to address inflationary changes.
Child Tax Credit
In the tax year 2023, the Child Tax Credit has undergone modifications compared to tax year 2021. The credit, which was previously as high as $3,600, has now been reduced to a maximum of $2,000. Additionally, it is no longer fully refundable but retains a refundable component of up to $1,600.
Child and Dependent Care Credit
The provisions for the Child and Dependent Care Credit for tax year 2023 remain consistent with pre-COVID relief levels. Taxpayers can claim up to 35% of $3,000 ($1,050) for child care expenses. In cases where there are two or more dependents, the credit extends to cover up to 35% of $6,000 in expenses ($2,100).
Earned Income Tax Credit (EITC)
In the tax year 2023, this credit holds a value of up to $7,430 for families with three children. For tax filers without children, eligibility requires being at least 25 years old but under the age of 65 to qualify for this credit.
Form 1099-K Reporting
The American Rescue Plan of 2021 altered the reporting rules for third-party payment processors, reducing the threshold for reporting payments to $600. Originally, the requirement was over 200 transactions per year and exceeding an aggregate amount of $20,000. Although initially slated to start with transactions in tax year 2022, the IRS announced delays on December 23, 2022, and November 21, 2023. Due to these delays, Third-Party Settlement Organizations (TPSOs) are not obligated to report tax year 2023 transactions on Form 1099-K for the lower threshold. For tax year 2023, the existing reporting threshold of over $20,000 in payments from over 200 transactions remains in effect. The IRS is planning a $5,000 threshold for tax year 2024 as part of the transition to the lower $600 threshold under the American Rescue Plan.
Solar Energy Credit
The solar energy credit has been raised to 30% for those who acquire residential energy-efficient property such as solar panels and solar water heaters, valid for purchases made between January 1, 2022, and December 31, 2032.
Home Improvement Credit
The credit for energy-efficient home improvements saw a significant boost for tax year 2023, jumping from a maximum of 10% to an impressive 30% of the cost for specific qualified energy-efficient enhancements. This increase allows for a maximum claim of up to $1,200 for select energy-efficient improvements and an annual cap of up to $2,000 for qualified heat pumps, biomass stoves, or biomass boilers. Notably, the credit is no longer subject to a lifetime dollar limit, removing the previous restriction of $500.
Electric Vehicle Credit
If you acquired an electric vehicle, the majority of changes introduced by the Inflation Reduction Act apply to vehicles purchased from January 1, 2023. This credit, equivalent to the purchase amount, has the potential to reduce your tax liability by up to $7,500. Starting from August 17, 2022, new electric vehicles are required to undergo final assembly in North America.
Student Loan Payments
As of September 1, 2023, the student loan payment pause concludes, and individuals will be required to resume their payments. However, amidst this change, there is a silver lining for taxpayers who have student loans. You can still benefit by deducting student loan interest on your taxes, with the maximum deduction set at $2,500.
Retirement Plan Contributions
For the tax year 2023, individuals contributing to their retirement funds have the opportunity to benefit from increased contribution limits. Specifically, the maximum contribution for 401K plans has been raised to $22,500, with an additional catch-up contribution allowance of $30,000 for those aged 50 and over. Likewise, individuals contributing to Traditional and Roth IRAs can now contribute up to $6,500, with a catch-up contribution limit of $7,500 for those who are 50 and over. These adjustments provide individuals with enhanced options to plan for their retirement and potentially enjoy additional tax advantages.
Health Savings Account (HSA)
In the realm of healthcare planning, the Health Savings Account (HSA) presents increased contribution opportunities for the tax year 2023. Individuals opting for self-only coverage can contribute up to $3,850, while those with family coverage have the option to contribute up to $7,750.
Flexible Spending Account
Navigating healthcare expenses is made more manageable with the Flexible Spending Account (FSA), offering individuals the opportunity to contribute up to $3,050 for the tax year 2023. Additionally, for those with an employer plan allowing the carry-over of unused amounts, the maximum carry-over for 2023 has been set at $610.
Deductible Mileage Rates
For business-related travel, the mileage rate is set at 65.5 cents per mile, allowing individuals to claim deductions for work-related transportation expenses. Furthermore, for those who have incurred mileage while traveling to doctor visits, a deduction at the rate of 22 cents per mile is applicable. Engaging in charitable work also brings potential deductions, with a rate of 14 cents per mile for mileage related to volunteering for a 501(c)(3) recognized charity.
The Adoption Credit
If you paid qualified adoption expenses in 2023, you may be able to take a credit up to $15,950 on your 2023 taxes.
Annual Gift Tax
The annual gift tax exclusion for 2023 is $17,000 ($34,000 if you are married). So you can gift up to $17,000 without tax consequences.
There's no need to memorize these tax law changes. At Grants Pass Tax Service, we're here to help you navigate through the upcoming tax season.
Sources: Image by Bruno Cervera
