Taxpayers are gearing up for the 2023 tax season as the IRS has begun accepting 2022 returns. However, are you aware of the changes the IRS has made for the 2023 tax season? It is advisable to review your 2021 tax return and use that as a framework for all the documents and information you may need for your 2022 taxes.
However, before you start working on your documentation and tax return filing, don’t feel overwhelmed by the changes introduced by the IRS during the 2023 tax season. Here’s our list of all the biggest changes the IRS has made to tax season 2023.
Tax Changes in 2023
From saying goodbye to pandemic-era tax credits to reporting your crypto and NFT transactions, here are some of the key tax changes that could affect your return this year.
Removal of Pandemic-Era Tax Credits
In response to the COVID-19 pandemic, the IRS implemented a number of temporary changes to the tax code. In the 2022 tax year, many of those tax changes, including stimulus checks (Economic Impact Payments), may expire.
Furthermore, the amounts of the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and the Child and Dependent Care Credit will return to pre-pandemic levels. The enhanced CTC has been reinstated to $2,000 per child dependent for the 2022 tax year, down from $3,600 last year. At the same time, it’s not refundable anymore, meaning taxpayers may not be able to receive the full credit if it’s bigger than the tax they owe. The maximum amount that an individual filer with no children can get from the EITC has come down from $1,500 to $500.
Taxpayers filing their 2022 tax returns must also itemize any charitable contributions using the Schedule A form if they wish to get a deduction. It is a major change from the past two years when the IRS was offering an above-the-line deduction for contributions.
Inflation Reduction Act Takes Effect
Signed in August 2022, the law provided a number of new tax breaks for the benefit of filers this tax season. The act raised the Residential Clean Energy Credit, allowing filers to subtract 30% of the installation costs for solar heating, solar electricity (such as panels), and other solar products for home, up from 26%. In addition, there is no limit on credit or income limitations.
Under the new law, consumers who purchased a new electric vehicle (EV) are now eligible to get the Qualified Plug-in Electric Drive Motor Vehicle Credit with a maximum of $7,500 depending on the capacity of the battery.
Mortgage Insurance Premium Deduction Removed
Homeowners who pay a mortgage insurance premium or private mortgage insurance are no longer eligible for deducting it from their itemized taxes. This deduction, which was implemented under Section 419 of the Tax Relief and Health Care Act of 2006 and with an annual extension, was not renewed by the IRS for the 2022 tax year.
Increased Tax Likely for Remote Workers
Several employers continued to work remotely through the year 2022. While some states provided temporary relief provisions to avoid double taxation of income by states in 2020-2021, many of those benefits will expire for the ongoing tax year.
According to experts, four states, namely Delaware, Nebraska, New York and Pennsylvania, have a “convenience rule”. On the other hand, Connecticut has a ‘retaliatory’ convenience rule. According to their specific states, workers on remote jobs may have to double taxes without getting the opportunity to claim a credit for taxes paid to other states.
Tax Deadline Changed
While the usual tax deadline remained April 15, this year, the IRS fixed the last date for filing your federal returns on April 18. (Tuesday). It may be because April 15 falls on a Saturday and the next business day (April 17-Monday) is a local holiday in the District of Columbia. In addition, the states of California, Georgia and Alabama have allowed victims of severe storms to file their returns till May 15.
The IRS has raised income tax brackets for the 2022 tax year in view of rising inflation. In addition, for your 2022 tax return, the standard deduction for single tax filers has gone up by $400 to $12,950. For those married and filing jointly, it has an extension of $800 to $25,900.
The agency is also accelerating efforts to track cryptocurrency sales and trades. Currently, crypto is taxed like property. Hence, it is important to file it as short or long-term capital gains taxes.
Also read: What is the 2023 IRS Mileage Rate
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