With a little preparation, taxpayers can approach the upcoming tax filing season with confidence. Here are some things taxpayers can do to prepare for the 2023 tax filing season.
Gather tax records. First, taxpayers should gather all their tax records. Taxpayers who have all their tax documentation gathered and organized are in the best position to file an accurate return and avoid processing or refund delays or receiving IRS letters.
Note. Tax records include copies of filed tax returns for at least the last one or two tax years (if you are a new client) and all supporting documents for those returns. These old returns will help the taxpayer to prepare their 2022 return.
Second, taxpayers should consider financial transactions that occurred in 2022 to determine if they are taxable and how they should be reported. Taxpayers should have an electronic or paper record-keeping system to store tax-related information in one place for easy access.
Note. Taxpayers should remember most income is taxable. This includes unemployment income, refund interest, and income from the gig economy and/or digital assets. Taxpayers should report all the income they've earned, including from tips, part-time work, side jobs, or the sale of goods and services or digital assets, unless its specifically tax-exempt.
Before year's end. Taxpayers should confirm their employer, bank, and other payors have the taxpayer's current mailing address and email address. This will ensure that they receive their year-end tax statements.
Typically, year-end tax forms start arriving by mail or are available online in mid-to-late January. Investment forms are typically available in March. Taxpayers should carefully review each income statement for accuracy and contact the issuer to correct information that needs to be updated.
Get Ready for what's new for Tax Year 2022
With the end of the year approaching, time is running out to take advantage of the Tax Withholding Estimator on IRS.gov. This online tool is designed to help taxpayers determine the right amount of tax to have withheld from their paychecks. Some people may have life changes like getting married or divorced, welcoming a child, or taking on a second job. Other taxpayers may need to consider estimated tax payments due to non-wage income from unemployment, self-employment, annuity income or even digital assets. The last quarterly payment for 2022 is due on Jan. 17, 2023. The Tax Withholding Estimator on IRS.gov can help wage earners determine if there is a need to adjust their withholding, consider additional tax payments, or submit a new W-4 form to their employer to avoid an unexpected tax bill when they file.
As taxpayers gather tax records, they should remember that most income is taxable. This includes unemployment income, refund interest and income from the gig economy and digital assets.
Taxpayers should report the income they earned, including from part-time work, side jobs or the sale of goods. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third-party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K. The lower information reporting threshold and the summary of income on Form 1099-K enable taxpayers to easily track the amounts received. Remember, money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Those who receive a 1099-K reflecting income they didn't earn should call the issuer. The IRS cannot correct it.
Credit amounts also change each year like the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Dependent Care Credit. Taxpayers can use the Interactive Tax Assistant on IRS.gov to determine their eligibility for tax credits. Some taxpayers may qualify this year for the expanded eligibility for the Premium Tax Credit, while others may qualify for a Clean Vehicle Credit through the Inflation Reduction Act of 2022.
Refunds may be smaller in 2023. Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who don't itemize and take the standard deduction, won't be able to deduct their charitable contributions.
The IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. For example, the IRS and its partners in the tax industry, continue to strengthen security reviews to protect against identity theft. Additionally, refunds for people claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) can't be issued before mid-February. The law requires the IRS to hold the entire refund – not just the portion associated with EITC or ACTC. This law helps ensure taxpayers receive the refund they're due by giving the IRS time to detect and prevent fraud.
For taxpayers who are still waiting for confirmation that last year's tax return processed, or for a tax year 2021 refund or stimulus payment to process, their patience is appreciated. As of Nov. 11, 2022, the IRS had 3.7 million unprocessed individual returns received this year. These include tax year 2021 returns and late filed prior year returns. Of these, 1.7 million returns require error correction or other special handling, and 2 million are paper returns waiting to be reviewed and processed. They also had 900,000 unprocessed Forms 1040-X for amended tax returns. The IRS is processing these amended returns in the order received and the current timeframe can be more than 20 weeks.
Note. The IRS can't change the amounts listed on a reporting form such as Form W-2 or Form
1099-NEC. If the taxpayer finds incorrect information on a reporting form, they must contact the issuer to get the form corrected.
Renew ITINs. Taxpayers who have individual tax identification numbers (ITINs) should be sure that their number hasn't expired before filing their 2022 return. Taxpayers who need to renew their ITIN to file a tax return should submit a Form W-7, Application for IRS Individual Taxpayer Identification Number, now. Applying now will allow the taxpayer to avoid the Spring rush to get an ITIN as well as refund and return processing delays.
Adapted from copyrighted materials provided by Thomson Reuters/Tax & Accounting, Checkpoint Federal Tax Update, “Getting Ready to File 2022 Income Tax Returns” (12/06/2022) and “Return Requirements – preparing for filing returns in 2023” (11/22/2022).