As tax filing season gets underway this month, filers can expect to see changes in tax brackets and higher standard deductions that could benefit them, and they are advised to avoid overlooking key tax credits and making common mistakes that could delay refunds or have them pay more in taxes than they should.
Inflation adjustments could push some filers into a lower tax bracket with a lower tax rate, even as tax rates remain the same. As an example, a single filer with taxable income of $42,000 in tax year 2022 was in the 22% tax bracket, which at the time was the rate for taxable incomes over $41,775 up to $89,075, according to the IRS. That filer now falls into the 12% tax bracket due to inflation adjustments. A married couple filing jointly with taxable income of $180,000 in tax year 2022 was in the 24% tax bracket. They now fall into the 22% tax bracket for tax year 2023.
The rates released by the IRS for single filers for tax year 2023 are:
* 10% for incomes of $11,000 or less
* 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
* 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
* 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
* 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
* 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
The IRS adjusts tax brackets and standard deductions every year for inflation, said Lily Bartkoske, a certified public accountant and partner with Tinley Park-based Ringold Financial Management Services.
The standard deduction for married couples filing jointly for tax year 2023 is $27,700, up $1,800 from the prior year, according to the IRS. For single taxpayers and married individuals filing separately, the standard deduction is $13,850, up $900, and for heads of households it is $20,800, up $1,400.
Who should take the standard deduction and who should itemize? If your itemized deductions exceed the standard deduction amount, it would be beneficial to itemize, Bartkoske said. If you don’t have a lot of deductions, you’re likely a good candidate for standard deductions, such as someone who doesn’t have a house, mortgage interest, property taxes or a lot of medical expenses, she said.
Itemized deductions remained pretty much the same this year. The deduction for state and local taxes limit is $10,000, and medical expenses in excess of 7.5% of adjusted gross income can be deducted in 2023, she said. Homeowners can deduct home mortgage interest on the first $750,000 of indebtedness. However, a limit of $1 million applies for homeowners deducting mortgage interest from indebtedness incurred before Dec. 16, 2017, the IRS website states.
Bartkoske advises tax filers not to overlook important tax credits including new tax credits for new and used electric vehicle and fuel cell vehicle purchases. New vehicles that meet requirements may qualify for credits up to $7,500, and used vehicles may qualify for credits up to $4,000, according to the IRS.
Homeowners who made improvements on their homes may also be eligible for the energy efficient home improvement credit, Bartkoske said. A credit of up to $3,200 may be claimed for qualified improvements made through 2032, according to the IRS website. The credit is 30% of certain qualified expenses and includes such investments as energy efficient doors, windows, insulation and air sealing materials and systems, heat pumps, biomass stoves and biomass boilers that meet certain requirements. The credit has no lifetime dollar limit and can be claimed every year eligible improvements are made until 2033.
Taxpayers sometimes overlook the child and dependent care credit and the Earned Income Tax credit, Bartkoske said. The child and dependent care credit, which has certain requirements, is available for individuals who paid expenses for the care of a child or adult that enabled the taxpayer to work or look for work.
“If you qualify, you can claim expenses up to $3,000 for one person and $6,000 for two or more people,” she said.
The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022, the IRS states.
Bartkoske says taxpayers should proofread their returns. Among common mistakes she sees that can delay taxpayers getting their refunds are their listing incorrect Social Security numbers, misspelling names and inadvertently filling in the wrong bank information.
To avoid paying too little or too much in taxes this year, now is a good time to review the tax withholding on your paycheck, she said.
“A lot of people either have too much taken out where they end up getting a lot back during the tax season, but that’s giving the government a tax-free loan,” she said. “Some people don’t have enough taken out and at the end of the year end up owing quite a bit and have a hard time coming up with several thousand dollars to pay to the government because they didn’t have enough taken out.”
The IRS expects more than 128.7 million individual tax returns to be filed by the April 15, 2024 tax deadline. The agency says tax filers can make the process easier on themselves by taking steps now to prepare including creating or accessing their account information at IRS.gov/account, gathering and organizing tax records and checking their individual tax identification number.
The IRS says it will have these new and expanded tools and resources available to help including:
Extended hours and expanded in-person service at Taxpayer Assistance Centers. To find a center near you, visit https://apps.irs.gov/app/office-locator/
Improvements to the Where’s My Refund? Tool. Visit https://www.irs.gov/wheres-my-refund
Enhanced paperless processing that will enable taxpayers to submit all correspondence, nontax forms and responses to notices digitally and e-File 20 additional tax forms
A new, pilot tax filing service called Direct File that gives eligible taxpayers a new choice to file their 2023 federal tax returns online, for free, directly with the IRS. It will be rolled out in phases and is expected to be widely available in mid-March. Go to www.irs.gov/about-irs/strategic-plan/direct-file.
Francine Knowles is a freelance columnist for the Daily Southtown.
