NEW Tax Laws for 2024 - 2023 Filing
NEW TAX LAWS 2024 - Q & A
How soon can I file my 2023 tax return? (the taxes you file in 2024)
In early January. Keep an eye on the updates on the IRS e-file opening.
What is the deadline for filing my tax return for 2023?
There is a midnight deadline on Monday, April 15, 2024, unless you file for an extension. People who live in areas affected by natural disasters may also have a later deadline.
In 2023, what will be the standard deduction?
Every year, the standard deduction is adjusted for inflation, and for single taxpayers (and married individuals filing separately), the standard deduction rose $900 from the previous year to $13,850 ($27,700 for married individuals filing jointly). As for heads of households, the standard deduction will increase by $1,400 to $20,800.
How will the tax law change in 2023 affect taxes?
Several important tax benefits related to COVID relief, such as the Child Tax Credit, will return to their previous tax rules or expire in 2022. This could result in lower refunds for taxpayers who have become accustomed to receiving higher refunds due to COVID relief. While these changes are not new for tax year 2023, we want to remind you that you may again be eligible for these benefits. These key tax benefits include the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit. Continue below:
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Credit for children
The Child Tax Credit benefits for 2023 are as follows:
The COVID relief credit was reduced from $3,600 to $2,000 in tax year 2021.
Dependent children must be under the age of 17.
It is no longer fully refundable but is refundable up to $1,600.
For tax year 2023, no advance payments were made.
You can claim the credit if you earn up to $200,000 as a single taxpayer or head of household (or up to $400,000 if you are married filing jointly).
Credit for child and dependent care
For tax year 2023, the Child and Dependent Care Credit provisions remain the same as they were before the American Rescue Plan provided relief for COVID:
You can claim up to 35% of the first $3,000 ($1,050) of childcare expenses for a dependent child under 13, a spouse or parent who is incapacitated, or another dependent who needs care so that you can work.
A credit of 35% of $6,000 in expenses, $2,100., is available if you have two or more dependents.
Over $15,000 in income, the credit will be reduced.
Credit for Earned Income
It can help reduce the taxes you owe and even result in a larger refund if you qualify for the Earned Income Tax Credit, EITC, which is a tax break for low-income workers and families. For tax year 2023, this credit is worth up to $7,430 for a family of three. In order to claim the credit, tax filers without children must be at least 25 years old and under 65 years old.
Transactions involving payment cards and third-party networks - Form 1099-K
In the event that you accept credit, debit, or prepaid cards or accept payments through third parties such as Venmo and PayPal as a self-employed individual, you may receive Form 1099-K. Online sellers on platforms like eBay, Airbnb, Etsy, and VRBO, as well as creators, influencers, rideshare drivers, or side gig, may also receive Form 1099-K.
The American Rescue Plan of 2021 changed the reporting requirements for third-party payment processors. Originally, these processors were required to report transactions exceeding $20,000 or involving more than 200 transactions yearly. However, the new plan decreased the reporting threshold to payments over $600. Although this change was supposed to take effect in 2022, the IRS announced a delay on December 23rd of that year. This delay was later extended on November 21st, 2023. As a result, Third Party Settlement Organizations (TPSOs) are not required to report any transactions from tax year 2023 on Form 1099-K to the IRS or payee for the lower threshold amount. This also means that for tax year 2023 (which will be filed in 2024), the current reporting threshold of more than $20,000 in payments from over 200 transactions will remain in place. The IRS plans to implement a $5,000 threshold for tax year 2024 (filed in 2025) as part of the gradual transition to the lower over $600 threshold set by the American Rescue Plan.
It is not a change to the tax law but a change to the reporting requirements for third-party payment processors. Self-employed individuals have always been required to report their self-employment income, and if your net income exceeds $400, you must file your self-employment taxes regardless of whether you receive a form. Moreover, if you are self-employed, all expenses directly related to your business can also be deducted.
Act to Reduce Inflation
With new tax provisions, extensions, and expansions of tax benefits related to energy efficiency, healthcare, and corporate taxes, the Inflation Reduction Act was signed into law in August 2022. The Inflation Reduction Act takes effect in 2023 in most cases.
Purchases of residential energy-efficient property, such as solar panels and solar water heaters, between January 1, 2022, and December 31, 2032, will qualify for a 30% solar energy credit.
The amount of the energy-efficient home improvement credit was increased from up to 10% to up to 30% of the cost of certain qualified energy-efficient improvements for the tax year 2023. A maximum of $1,200 for certain energy-efficient improvements and $2,000 for qualified heat pumps, biomass stoves, or biomass boilers can be claimed annually.
Like the previous $500 lifetime dollar limit, the credit no longer has a lifetime dollar limit.
With electric vehicles purchased beginning January 1, 2023, most of the changes under the Inflation Reduction Act will take effect. As of August 17, 2022, electric vehicles must receive final assembly in North America. This dollar-for-dollar credit can reduce taxes owed by up to $7,500.
Starting in tax year 2023, you may be eligible for a tax credit if you purchase a used electric vehicle up to the lesser of $4,000 or 30%.
It depends on your income, the price of the electric vehicle, whether it was assembled in North America, and whether you qualify for the tax credit.
Payments on student loans
According to the U.S. Department of Education, Congress passed a law preventing further extensions to the student loan payment pause on June 14, 2023. As a result, student loan interest will resume starting on September 1, 2023 and payments will be due starting in October 2023. You can deduct student loan interest up to $2,500 from your taxes.
How else can my taxes be affected by adjustments to key amounts?
Contributions to retirement plans
For 2023, the maximum contribution limit for 401K plans increased to $22,500, and $30,000 if you are over 50. For traditional and Roth IRAs, the maximum contribution limit increased to $6,500., $7,500 if you are over 50. It is possible to deduct the contribution amount on your 2023 taxes, which you file in 2024, if you contribute to your IRA before the April deadline.
Accounts for health savings
In addition, you may be able to deduct contributions you made directly to your health savings account at tax time, up to $3,850 for self-only coverage and $7,750 for family coverage.
Accounts with flexible spending
The maximum contribution for 2023 is $3,050, and if you have an employer plan that allows carryover of unused amounts, the maximum carryover amount is $610.
Rates for deductible mileage
Don't forget to track your business mileage when you drive for your business since you can deduct your business mileage, which is 65.5 cents per mile for tax year 2023. You may be eligible for a 22 cents per mile deduction if you have to travel to doctors' appointments. You may be able to deduct your mileage expenses at 14 cents per mile if you drove to volunteer for a recognized 5 0 1 c 3 charity.
Credit for adoption
Tax credits of up to $15,950 may be available if you paid qualified adoption expenses in 2023.
Tax on annual gifts
In 2023, the annual gift tax exclusion is $17,000, $34,000 if you are married, so you can give up to $17,000 tax-free.
Benefits for Unemployed
You will need to pay taxes on payments received from unemployment benefits. You should receive a 1099-G reporting unemployment benefits received.
Deductions for business and at-home expenses
Self-employed people can claim a variety of deductions, including business travel mileage and home office expenses. In order to make sure you don't miss business deductions related to your self-employed income. This is the one tax deduction where you can control your tax liability, year after year, legally. Learn how in the channel's tax course: IRS Schedule C for Freelancers and Small Business Owners.
Unfortunately, self-employed workers cannot claim a deduction for their home expenses if they work from home for their employer.
Additional Tax Tips
You may receive more tax forms if you worked a side gig, received unemployment benefits, or traded stock for the first time in 2023.
If you received unemployment benefits, you will receive a 1099-G.
Dividends or interest over $10 are reported on a 1099-DIV/1099-INT.
The 1099-NEC is a form used to report self-employment income or nonemployee compensation.
The 1099-MISC is used if you earned rental or other income, but not if you earned self-employment income.
This form may be sent to you if you earned income from credit cards, debit cards, prepaid cards, or third-party processors such as Venmo, PayPal, or CashApp.
If you received distributions from a health savings account, you will receive a 1099-SA.
The 1099-R is issued if you received distributions from a retirement plan or IRA.
If you sold stock, you will receive a 1099-B
Employer's W-2: If you earned wages.
This article was written by C. Ingram, a Registered Tax Professional with the IRS since 1999. She enlisted the help of the IRS and AI software, including Grammarly. She ensures that the new tax laws included on this page are correct and can be verified on the IRS website at HTTPS://irs.gov
