Personal Finance

2023 Tax Refund: What are the tax changes if you expect a refund?

You’ll be able to submit your federal tax return in a few weeks. Even if you hate tax season, now is a wonderful time to plan yourself so that the filing process goes as smoothly as possible.

Reviewing this year’s major tax changes that will probably affect the size of your tax refund is a good place to start.

The standard deduction for 2022 is higher

Along with the rate of inflation, the standard deduction typically rises a little each year. The standard deduction has been raised for tax year 2022, going from $12,950 for single taxpayers to $25,900 for married couples filing jointly (an increase of $800).

Income tax brackets are also higher in 2022

The income tax bands were also increased for 2022 to reflect inflation. Your income bracket is based on your adjusted gross income, which is the amount of money you make before taxes are deducted but before itemized deductions and tax credits are applied.

Child tax credit has returned to normal

The CTC is now only available to children under the age of 17 and has been reduced to its pre-pandemic level of $2,000 per kid or dependent. For certain parents with lower incomes, the credit is now only partially refundable from last year, and advance payments are no longer available.

Fewer filers will qualify for the Child Care and Dependent Tax credit

This tax benefit has also been restored to its prior level for 2022. Now, parents of a single kid are only permitted to deduct up to $1,050 in eligible expenses, or 35% of a maximum of $3,000 in expenses. A maximum of $2,100 can be claimed for up to 35% of up to $6,000 in qualifying expenses by parents of multiple children.

It’s harder to qualify for the Earned Income Tax credit if you don’t have kids

The maximum EITC claim for those without children or dependents for their 2022 tax return is $560, down from the previous year’s $1,502 maximum. You must be between the ages of 25 and 65 to qualify, which is a return to the previous age restrictions.

The maximum credits for people with children and the income requirements for the EITC, however, have increased significantly as a result of inflation.

You can still owe state taxes if your student loans were forgiven

You may have earned student loan forgiveness under the Public Service Loan Forgiveness program or another comparable initiative, even while widespread federal student loan relief is still on hold.

You won’t be responsible for paying federal taxes on any balances that were cancelled in 2022 if you have any. This is due to a clause in the 2021 American Rescue Plan that delays federal taxation of forgiven post-secondary education loans until 2025.

You have to report your crypto and NFT transactions

Although not entirely new, the IRS is putting greater effort into keeping track of bitcoin purchases and trades in 2022. Any time you exchange, sell, or buy something with cryptocurrency, it is a taxable event. Cryptocurrency is currently liable to short- or long-term capital gains taxes because it is taxed similarly to property.

This implies that you can disclose any cryptocurrency losses to help balance out any gains. Since cryptocurrencies like bitcoin and ethereum suffered a sharp decline in value in 2022, you might be able to lower your tax bill by reporting your capital loss if you sold or traded your cryptocurrency at a loss. The same is true of NFTs.

PayPal, Venmo and other third-party apps will report your payments to the IRS

If you’ve been working for yourself or as a freelancer for a while, you probably already know that you must inform the IRS of your earnings. Since third-party payment applications are now informing the IRS of your payment activities, the IRS will have even more access to your revenues this year.

Freelancers may benefit from this new regulation. Users will be given 1099-K forms by platforms like PayPal, Venmo, Cash App, Zelle, and others, which may make reporting your income a little simpler.

Retirement contribution limits increased

The individual 401(k) contribution cap was raised to $20,500 for 2022, an increase of $1,000 from 2021. An additional $6,500 can be contributed if you’re over 50. The maximum combined contribution for 2022, which also includes your employer’s contributions, is $61,000 ($67,500 for individuals who are 50 years of age or older). IRA contributions stayed at $6,000 for the entire year, with a $1,000 catch-up contribution for people age 50 and over.

Temporary charitable donation deductions have ended

This tax year, fewer taxpayers might be eligible to make charitable donation tax deduction claims. Benefits for increased charity financial contributions that were provided in 2020 and 2021 are no longer available. The interim suspension of the 60% AGI ceiling in 2020 and 2021 is now reinstated, which has a bearing on the maximum amount of charitable contributions you may deduct.

Leave a Reply