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We are in the midst of tax season, and although many people have already had their tax return prepared and filed, many more haven’t started this process yet. If you still need to prepare your 2023 tax return, here are some things you should know.

The Essentials

The deadline this tax season for filing your individual tax return is April 15, 2024. However, those who live in Maine or Massachusetts will have until April 17, 2024, to file due to official holidays observed in those states.

Once you have received all of your tax documents, it’s important to review them for any inaccuracies or missing information. If you find any issues, immediately contact the person who issued the document to request a correction.

Having organized tax records can make the process of preparing a complete and accurate tax return easier and may also help you identify any overlooked deductions or credits.

Changes to credits and deductions for tax year 2023

Standard deduction amount increased. For 2023, the standard deduction amount has been increased for all filers. The amounts are:

• Single or married filing separately — $13,850.
• Head of household — $20,800.
• Married filing jointly or qualifying surviving spouse — $27,700.

Additional child tax credit amount increased. The maximum additional child tax credit amount has increased to $1,600 for each qualifying child.

Child tax credit enhancements. Many changes to the Child tax credit (CTC) that had been implemented by the American Rescue Plan Act of 2021 have expired.

Legislation is being considered by Congress that might affect the Child Tax Credit, but you should not wait to file your 2023 tax return this filing season. If Congress changes the CTC guidelines, the IRS will automatically make adjustments for those who have already filed so no additional action will be needed by those affected.

Under current law, for tax year 2023, the following currently apply:

• The enhanced credit allowed for qualifying children under age 6 and children under age 18 has expired. For 2023, the initial amount of the CTC is $2,000 for each qualifying child. The credit amount begins to phase out where AGI income exceeds $200,000 ($400,000 in the case of a joint return). The amount of the CTC that can be claimed as a refundable credit is limited as it was in 2020 except that the maximum ACTC amount for each qualifying child increased to $1,500.
• The increased age allowance for a qualifying child has expired. A child must be under age 17 at the end of 2023 to be a qualifying child.

Changes to the Earned Income Tax Credit (EITC). The enhancements for taxpayers without a qualifying child implemented by the American Rescue Plan Act of 2021 will not apply for tax year 2023. To claim the EITC without a qualifying child in 2023, you must be at least age 25 but under age 65 at the end of 2023. If are married and filing a joint return, one spouse must be at least age 25 but under age 65 at the end of 2023.

New Clean Vehicle Credit. The credit for new qualified plug-in electric drive motor vehicles has changed. This credit is now known as the Clean Vehicle Credit. The maximum amount of the credit and some of the requirements to claim the credit have changed.

1099-K reporting requirements have not changed for tax year 2023

Following feedback from taxpayers, tax professionals and payment processors, the IRS recently announced a delay of the new $600 reporting threshold for tax year 2023 on Form 1099-K, Payment Card and Third-Party Network Transactions. The previous reporting thresholds will remain in place for 2023.

Form 1099-K reporting requirements

If you take direct payment by credit, debit or gift cards for selling goods or providing services by customers or clients, then you should get a Form 1099-K from your payment processor or payment settlement entity no matter how many payments you got or how much the payments were for.

If you used a payment app or online marketplace and received over $20,000 from over 200 transactions, the payment app or online marketplace is required to send a Form 1099-K. However, they can send a Form 1099-K with lower amounts. Whether or not you receive a Form 1099-K, you must still report any income on your tax return.

What’s taxable? It’s the profit from these activities that’s taxable income. The Form 1099-K shows the gross or total amount of payments received. You can use it and other records to figure out the actual taxes you owe on any profits. Remember that all income, no matter the amount, is taxable unless the tax law says it isn’t – even if you don’t get a Form 1099-K.

What’s not taxable?You shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K, note those payments as “personal,” if possible.

Good recordkeeping is key. Be sure to keep good records because it helps when it’s time to file a tax return. It’s a good idea to keep business and personal transactions separate to make it easier to figure out what you owe.

If you haven’t yet filed your 2023 tax return, there’s still time. Contact our office, and we would be happy to schedule a time to prepare your taxes.

If you’re not a tax professional, some of the lingo used when talking about taxes might be a little confusing. Today we want to look at two terms that are often confused and which together play an important role in determining how much you are required to pay in taxes: tax credits and tax deductions.

Tax credits and deductions both change your tax bill or refund, but in slightly different ways. It’s important to understand the difference between credits and deductions so that you can know which of these you want to claim, and so you know what records to keep in order to prove your eligibility.

Tax credits

A tax credit reduces your income tax bill dollar-for-dollar.

Some tax credits, such as the Earned Income Tax Credit, are refundable. If your tax bill is less than the amount of a refundable credit, you can get the difference back in your refund.

To claim a tax credit, you should:

• Keep records to show your eligibility for the tax credits you claim.
• Check now to see if you qualify to claim any credits next year on your tax return.

Deductions

Deductions can reduce the amount of your income before you calculate the tax you owe.

Most people take the standard deduction. The standard deduction changes each year for inflation. The amount of the standard deduction depends on your filing status, age, whether you’re blind, and whether you are claimed as a dependent by someone else.

Some people must itemize their deductions, and some people may choose to do so because it reduces their taxable income more than the standard deduction. Generally, if your itemized deductions are larger than your standard deduction, it makes sense to itemize.

If you would like help understanding the tax credits and deductions that you are eligible for, please contact our office.

If you are age 70½ or older, you may be able to exclude a qualified charitable distribution (QCD) of up to $100,000 from your income each year. A QCD is a taxable distribution paid directly from an IRA (other than an ongoing SEP or SIMPLE IRA) to a qualified charity. It cannot be paid to you as the IRA owner.

To take advantage of this tax reducing strategy, you must be at least age 70½ when the QCD distribution to the charity is made. The SECURE 2.0 Act of 2022 did not change the 70½ age to be eligible to make a QCD.

A few features that make a QCD attractive are:

• A QCD does not affect your income and is tax-free if paid directly from the IRA to an eligible charitable organization.
• A QCD is available whether you itemize deductions or take the standard deduction.
• A QCD may also count toward your required minimum distribution for the year.
• Because a QCD does not count toward income, a QCD does not affect eligibility for certain tax credits that are based on income.

If you would like more information about whether a QCD is a good option for you given your situation, please contact our office. We would be happy to talk things over.

The Internal Revenue Service has issued the 2024 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2024, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 67 cents per mile driven for business use, up 1.5 cents from 2023.
• 21 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, a decrease of 1 cent from 2023.
• 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2023.

These rates apply to electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Note that you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

You can use the standard mileage rate but generally must opt to use it in the first year the car is available for business use. Then, in later years, you can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

The IRS has announced a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. Instead, the agency will treat 2023 as an additional transition year. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

The IRS also announced that it is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation.