Getting ready for the 2023 tax season? The best overall advice is to e-file to avoid the IRS backlog of paper returns and to get help if you need it. This year, changing guidelines on tax credits and a new reporting requirement for business transactions on Venmo, Paypal and Cash App could cause a bit of confusion. Don't be afraid to work with a tax pro, especially if you need to report self-employment income or online sales for the first time.
It's never too soon to start prepping. Here are seven tips to make filing your return easier in 2023.
Even with additional IRS employees working to help taxpayers deal with changing and potentially confusing filing requirements, this year's filing season could still be a tough one. If your return is flagged for review, your refund will almost certainly be delayed.
Inaccuracies in your tax return are a common trigger for an IRS audit. The IRS checks the information you provide against W-2 forms from your employer; 1099s from clients, banks or investment companies; and payment data from the government itself. If your tax return differs from what the IRS has on file, it may be flagged for a manual review, which could lead to a full-blown audit and possibly delay your refund.
Before you file, check your return for accuracy against the information the IRS has on file. Get a free digital copy of your tax transcript by visiting the IRS' Get Your Tax Record site.
If you can't get your tax information together by the April 18 deadline, you can file an extension to automatically move your deadline to October 16. But don't wait to pay the taxes you owe: The IRS expects you to make a good faith estimate if you want to avoid penalties and interest. Also be mindful of all IRS deadlines this year, including estimated tax payments for 2023.
Tax credits and deductions can reduce your tax bill significantly or increase your refund if you have one coming. The American Rescue Plan Act temporarily increased certain tax credits and added a special rule for charity deductions. Now that these programs are ending, check the eligibility rules and deduction amounts to see what's currently available.
Here are a few credits and a deduction to consider:
You may have heard about a new reporting requirement for payments processed by digital payment companies like Venmo, CashApp or Paypal. According to a provision in the American Rescue Plan, third party payment companies were going to be required to report transactions to the IRS using Form 1099-K for business account holders who received at least $600 in transactions in 2022—up from a threshold of $20,000 in 2021.
Thanks to a last-minute change in the law, implementation of this new rule won't go into effect until 2023, which means you won't have to worry about reporting income from a 1099-K form for the 2022 tax year. However, with or without a 1099-K, you still have to report income from self-employment, gig work (details below), sales of goods or other business transactions on your tax return. And, in preparation for new reporting rules in 2023, now is a good time to make sure your personal Venmo, Cash App and Paypal accounts aren't set to record your personal transactions as business.
If you earned money in the gig economy—driving for a delivery app, for example—you must report your income and pay taxes on it. Depending on whether you've worked as an employee or a contractor, you may need to file Schedule C: Profit or Loss from Business. The good news: If you are considered self-employed, you may be able to deduct some car or home office expenses. The bad news: Business taxes can be a bit more complicated. For more, visit the IRS' Gig Economy Tax Center.
Remember that capital gains taxes aren't based on the value of your investments: They're based on the profits you realize when you sell an investment for more than you paid. If you didn't sell any investment assets in 2022, you don't owe anything, at least for capital gains (dividends or interest payments count as income). However, if you sold stocks, mutual funds, real estate, cryptocurrency or another investment for a profit, you must report the gain (or loss) on your tax return and pay applicable capital gains taxes.
If you sold investments for a capital loss, you can use your loss to offset your capital gains for the year. You may also deduct up to $3,000 in capital loss against your ordinary income and do the same as a carryover loss of up to $3,000 a year until the loss is used up. You may also use a carryover loss to offset capital gains in future years.
Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.
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