2023 Tax Filing: Essential Information

In September, Michael Durschlag Bought a Fire Engine Red Kia EV6, an All-electric Crossover, For $70,000. He Expected To Receive a $7,500 Federal Tax Credit When He Filed HisReturn.

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The biotech executive in San Diego was wrong about the new energy law. Congress passed a law in August that says electronic vehicles purchased on or after Aug. 16, 2022, must be assembled in North America to qualify for a tax credit. His Kia, made in South Korea, doesn’t count.

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"I was surprised by the new rule," Mr. Durschlag says. "Usually when Congress puts a new rule in place, they make it start in the new year to give people time to adjust."
As tax season 2023 opens, there are a few changes that may cause confusion. The tax code changes every year, and accountants and individuals have to adjust. This year, taxpayers are facing expired Covid tax breaks, abrupt tweaks to energy tax incentives and a delay meaningful for gig-economy workers.

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The Internal Revenue Service (IRS) has announced that it will start accepting tax returns for the 2022 tax year on Monday, January 23. For many taxpayers, it is crucial to pay attention to reporting investment gains and losses after a down year in markets. Here are some other things you need to know about filing your taxes this year.

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This year, tax day is Tuesday, April 18, due to the weekend and the District of Columbia's Emancipation Day holiday on the 17th. The IRS is expecting 168 million individual tax returns. However, due to federally-declared disaster areas, many Californians and some taxpayers in Georgia and Alabama have until May 15 to file. Even if you go on extension until October 16, you must pay any tax you expect to owe by April 18 or May 15, or the IRS will add penalty and interest charges to the amount owed.

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You can start working on your tax return, but don't press the e-file button until all the reporting forms have arrived, says Alex Oware, an accountant in Denver. These forms include W-2s reporting wage income and 1099s reporting unemployment compensation, dividends and pension distributions. You should receive most forms by Jan. 31, but some could take longer to arrive.

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If you forget to include income from a freelance job and later receive a 1099 form from the payer, you may have to deal with an IRS letter saying you didn’t report that income and a possible balance due. One reason to file your taxes early is if you’re hoping for a big refund. The IRS says it will issue most refunds within three weeks for e-filed returns, so if you file early you could get your money back sooner.

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The average tax refund last season was nearly $3,200, while refunds for low-income taxpayers entitled to an earned-income tax credit and child tax credit may sometimes be closer to $10,000, according to the IRS. This is a significant amount of money that can help low-income families make ends meet.
Many taxpayers could see their tax refunds shrink by a few hundred to a few thousand dollars this year, since Congress chose not to extend several tax breaks put in place during the Covid-19 pandemic, including an expanded child tax credit and an enhanced child and dependent care tax credit.

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If you're always getting a refund, it might be time to talk to a tax professional about adjusting your withholding and estimated tax payments. That way, you could use that money for other things – like investing or everyday expenses, Oware says. "It's better to break even at the end of the day."

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This year, many taxpayers won't get a tax break for charitable donations. For tax year 2021, there was a special charitable deduction of up to $300 for individuals and $600 for joint filers for those who take the standard deduction instead of itemizing deductions. However, this deduction was not extended in the year-end budget bill. About nine out of 10 taxpayers take the standard deduction, which is $12,950 for single filers for 2022, double for married taxpayers filing jointly.

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The tax laws have changed, and the new energy and healthcare law that Congress passed in August has changed the rules for qualifying for a $7,500 tax credit for an electric vehicle purchase. The new rule requires that the final assembly of the vehicle be done in North America.

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The North America assembly rule doesn't apply if you entered into a binding contract to buy a car before Aug. 16 and took delivery before Jan. 1, 2023. For tax year 2023, new restrictions and new openness go into effect. Tesla Inc., for example, cut the prices on popular models but some buyers won't qualify because they earn too much.

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The energy law has revived a 30% tax credit for residential EV charging systems for 2022. This means that Mr. Durschlag will be able to get a 30% credit for the $2,000 he paid to buy and install an EV charger at his home. However, as of Jan. 1, the EV charger credit will be limited to certain census tracts.
The IRS has announced that it will delay the implementation of a new law requiring e-commerce platforms to provide the agency with information on users who generate more than $600 in revenue. The IRS says that it needs this information in order to match it with taxpayers’ returns and ensure that they are reporting income correctly. The delay will last until tax year 2023.

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Although the deadline has been pushed back, taxpayers are still responsible for reporting and paying taxes on their income. "People should have been reporting this income all along," says Caroline Bruckner, managing director of the Kogod Tax Policy Center at American University in Washington, D.C.
The old rules will apply for 2022 due to the delay, so platforms will have to report users’ income to the IRS if they had more than 200 transactions and $20,000 of revenue in 2022.

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Erin Collins, the National Taxpayer Advocate, has said that the IRS has made considerable progress in reducing backlogs. However, Ms. Collins predicts that taxpayers will continue to experience frustration and delays this tax season, citing a backlog of 5.9 million unprocessed individual returns as of Dec. 9 in her annual report to Congress. Agency officials say that taxpayers should expect better service this year than in the past, because they have hired 5,000 customer service representatives to answer telephones and handle taxpayer queries.

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Before you pick up the phone, you may want to consider creating an IRS online account. This will give you access to your tax records. To create an account, you will need to provide some sensitive personal information to a non-IRS contractor. The process of creating an account can be cumbersome, but it may be worth it to have easy access to your records.

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"Once you're done with your taxes, it makes your life easier when dealing with the IRS," says Mr. Oware.