Filing your tax return serves as an annual reminder of just how tediously complex the American tax code is — and this year is no exception.
It’s not as messy as the pandemic years, but there are plenty of new provisions taking effect, and some changes could potentially land midseason.
Procrastination may cost you: Interest on unpaid taxes and late penalties (yes, even penalties accrue interest) have more than doubled to 8 percent from just a couple years ago.
Here are some of the latest changes to keep in mind as the filing deadline — April 15, or April 17 for Maine and Massachusetts residents — approaches.
Can I file my return using the Internal Revenue Service’s new — and free — service?
Starting in mid-March, certain residents in a dozen states are expected to have the option to electronically file their returns using the I.R.S.’s Direct File program. The system, which is in a limited pilot, is slowly rolling out in phases, and will be accessible only to taxpayers with relatively simple tax situations.
To be eligible, taxpayers must have income limited to wages reported on Form W-2, Social Security or unemployment, as well as interest income of $1,500 or less. They must also claim the standard deduction (and not itemize their deductions).
Filers must also live in one of the 12 states participating in the pilot. Eight of those states don’t have a state income tax (Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming) and four do (Arizona, California, Massachusetts, and New York). The tool doesn’t provide state-tax returns yet, but guides taxpayers to a state-supported tool that can be used to prepare and file state tax returns.
For more details, check out my colleague Ann Carrns’ story.
I bought a new electric car. Am I eligible for any tax benefits?
Maybe. People who bought a new electric vehicle may again qualify for a tax credit of up to $7,500 in 2023 (and through 2032), but the eligibility rules have tightened: Your income and the car price must fall below a certain ceiling, and the vehicle itself must check a series of boxes.
To start, single tax filers must have modified adjusted gross income of $150,000 or less; and married joint filers must have earned $300,000 or less; and $225,000 for heads of households. (You can use your income from the year you get the car or the year earlier, whichever is lower.)
The vehicle’s manufacturer suggested retail price can’t exceed $80,000 for vans, sports utility vehicles and pickup trucks, and $55,000 for all other vehicles. There are plenty of finer details — the vehicles must have had their final assembly in North America, for example, and they must have certain battery components. You can visit the U.S. Department of Energys’s site to see whether your vehicle qualifies.
Your exact credit amount will vary based on when you received the car and whether it meets certain criteria. The credit is nonrefundable, which means you can’t get back more money than you owe in taxes and you can’t apply any excess to future tax bills.
Starting this year, buyers of new cars can transfer the credit to the dealership for an upfront discount rather than waiting to get the money during the 2025 tax filing season.
“They will, in theory, give you a reduction in the purchase price,” said Mark Luscombe, principal federal tax analyst for Wolters Kluwer, an information services firm.
What about used cars?
Starting this year, if you bought a qualified used electric vehicle from a licensed dealer for $25,000 or less, you may be eligible for a nonrefundable credit equal to 30 percent — up to $4,000 — of the sale price.
I made my home more energy efficient. Are there any new tax breaks to offset some of the costs?
Yes. Thanks to the Inflation Reduction Act, tax breaks in these categories became more generous and now cover more expenses — and some taxpayers may become eligible again even if they used up their previous credits in the past.
Starting in the tax year 2023, the energy-efficient home improvement credit lets taxpayers claim as much as $1,200 each year — up from a $500 lifetime maximum — for certain improvements made through 2032, including items like exterior doors, windows and insulation materials. Additionally, there’s another credit worth up to $2,000 annually for various new water heaters, heat pumps and boilers.
The residential clean energy property credit — for items like solar panels, solar water heaters or wind turbines — is also available again. From 2022 to 2032, the credit is 30 percent of qualified costs (then it’s later reduced to lower amounts).
The child credit could change midseason. Does that mean I should wait to file my taxes?
Nope. The House passed a bipartisan bill that would temporarily expand the child tax credit, which, if enacted, would largely benefit lower-income families, particularly those with multiple children. But it must first clear the Senate, where it faces challenges. Whatever happens, taxpayers shouldn’t put off filing — the I.R.S. would be able to pay any refunds due retroactively.
“No amended return would be needed,” said Julie Welch, director of taxation at Meara Welch Browne, P.C., in Kansas City, Mo.
The existing child tax credit is worth up to $2,000 for each qualifying dependent under 17, but it is reduced for married filers once their income exceeds $400,000, or $200,000 for singles and heads of household. (The I.R.S.’s Interactive Tax Assistant can help determine eligibility.)
But a portion of that credit — up to $1,600 — is refundable: That means after the credit reduces taxes owed, dollar for dollar, any remaining credit is paid in the form of a refund.
Inflation stung. Did the I.R.S. make any changes to mitigate this?
Indeed. The I.R.S. raised the outer limits of the federal tax brackets, or the income thresholds at which a higher tax rate applies, by about 7 percent to account for high inflation. Without the adjustments, people who received raises would have had more of their income taxed at higher rates, even if their income was simply keeping pace with higher prices.
For the 2023 tax year, for example, the 24 percent tax bracket kicks in on income over $95,375 for single taxpayers and $190,751 for married joint filers, with similar changes in other tax brackets. The standard deduction for single filers rose to $13,850 for 2023, up $900; for married people filing jointly, it rose to $27,700, up $1,800; it increased to $20,800 for heads of household.
The amount people could have saved in 401(k) plans in 2023 rose to $22,500, up from $20,500 in 2022. But qualifying taxpayers have until they file their returns to max out 2023 savings in their I.R.A.s. The total contributions can’t be more than $6,500, or $7,500 for those 50 and older.
For the 2024 tax year (returns filed in 2025) these levels moved up again.
I use Venmo for my side hustle. Is the I.R.S. tracking more of those earnings this year?
Not yet.
Freelancers, gig workers, small businesses — or anyone with a side job — have always been obligated to track and report income to the I.R.S. when their profits exceed $400. But to increase compliance, online processors and marketplaces — like Venmo, PayPal, eBay or Airbnb — were supposed to record and report more of this sales activity in 2023. That would be documented on I.R.S. Form 1099-K, which would be sent to both the I.R.S. and the taxpayer.
People who collect income through these online payment processors or marketplaces were supposed to receive these tax forms for all payments exceeding $600, but that requirement has been pushed back by the I.R.S. for a second consecutive year.
For this tax season, the old rules still apply: 1099-Ks will be required to be issued to people selling goods or services only once their activity exceeds 200 transactions and $20,000 in aggregate payments annually.
For the 2024 tax year, the I.R.S. said it planned to lower that threshold to $5,000 in aggregate payments annually, with no transaction minimums, before it eventually lowers it to its permanent level of $600 in total payments. But some people may still receive the forms for amounts above the lower thresholds anyway.
Ultimately, the I.R.S. decided it needed more time to work out the kinks that might arise when you send out millions of new forms to people who might not be expecting them — or not even owe any tax.
The agency is working on ways to ensure the Form 1099-Ks are only issued to those who should receive them.
The state and local tax (SALT) tax break was capped, but I heard there is a workaround. Am I eligible?
Many taxpayers in high-tax states sorely miss the more generous version of the SALT tax break, which let them deduct all income, property and sales taxes paid to state and local governments without limitation.
That all changed in late 2017, when the Tax Cuts and Jobs Act put a $10,000 cap on the SALT deduction through 2025. Residents grumbled, and before too long more than 30 states came up with workarounds.
Though state strategies vary greatly, the gist is this: Under federal tax rules, the SALT ceiling applies to individual taxpayers, but not businesses structured as pass-through entities — say, a construction company, or a small law firm — according to tax professionals. So if the pass-through entity — usually S Corporations or partnerships — pays the tax, then the individual owners can deduct the entity’s taxes on their personal tax returns, instead of their own state and local taxes.
“However, these workarounds are not available in all states, and their effectiveness can vary depending on the specific situation,” said Mark Friedlich, vice president of government affairs at Wolters Kluwer.
It’s also complicated — and the rules and deadlines to opt into this tax vary across states, which is why its necessary to work with a pro who is well-versed in the rules.
I waded into crypto. What do I need to know?
When anyone sells stocks, bonds or other investments, they’re required to report any profits (capital gains) or losses on their tax returns, as well as any interest or dividends earned. To make that easier, your brokerage firm is required to prepare tax forms — including the 1099-B and 1099-DIV — that help track these items, which are reported to the I.R.S.
Brokerage firms haven’t been required to report transactions on cryptocurrency and other digital assets, though that may soon change: A rule proposed last year would require them to send a new form — called a 1099-DA, for digital assets — starting for the tax year 2025.
But that doesn’t let taxpayers off the hook for tax year 2023 (or any year).
“Regardless of whether someone gets a tax form, it is their responsibility to report all of their income,” said Eric Bronnenkant, head of tax at Betterment, an investment firm. You can find more information on how that’s done inside the 1040 instructions as well as the Taxpayer Advocate Service and I.R.S. websites.
If you bought or sold cryptocurrency held in a traditional investment wrappers — like Bitcoin E.T.F., for example — those transactions are still tracked on the existing 1099-B, just like any other exchange-traded fund or stock.
Are there any changes for retirees (or those nearing retirement)?
A law that took effect last year lets retirees delay making required minimum withdrawals from tax advantaged retirement accounts until the year a person turns 73, up from 72 in 2022.
In practice, that means if you turned 72 in 2023, you can delay your first required withdrawal (for 2024) another year, or until April 1, 2025, said David Oh, head of tax and estate planning at Arta Finance.
But if you turned 73 in 2023 (and were 72 in 2022), you’re subject to the older rules — and have a deadline approaching: Your next required withdrawal must be taken by April 1, 2024.
These rules apply to traditional I.R.A.s, SEP I.R.A.s and SIMPLE I.R.A.s. People with 401(k)s can put off withdrawals until after they retire, while Roth I.R.A.s aren’t subject to them until after the account owner dies.
