Tax season is upon us! Here’s what you need to know to make filing easier.
New father? Recently married? There are a lot of different factors when filing your taxes. Here’s what to know so you can be better prepared this season.
It’s almost a new year, but there’s still something to finish in 2023: taxes.
Tax season typically begins in late January when the IRS officially begins accepting and processing tax returns. You usually have until April 15 to file your taxes, unless it’s a holiday or weekend, which gives you more time to file your taxes.
However, professionals urge most people to prepare now and get it done as quickly as possible, if for no other reason than to get their money back faster.
“Refunds fell a little last year due to waning pandemic benefits, but I think they have stabilized and may rise due to inflation adjustments,” said Mark Steber, chief tax officer at tax preparation firm Jackson Hewitt.
Last year, the average tax refund by the April deadline was $2,753, down from $3,012 the year before, when pandemic-related benefits helped boost refunds, the IRS said.
How does inflation affect taxes and refunds?
The IRS makes annual inflation adjustments on many tax provisions, including tax brackets, standard deductions, and 401(k) and IRA contributions. Here are some examples of how these adjustments will help with your taxes this year:
- The income thresholds for tax brackets for 2023 were revised by a record 7% due to high inflation. Therefore, if your taxable income remains relatively constant, you may end up in a lower tax bracket with an accompanying lower tax rate.
For example, single filers with taxable income ranging from $41,776 to $89,075 were in the 22% federal income tax bracket last year. For 2023, this bracket applies to single filers with taxable income between $44,725 and $95,375.
So, if you have $42,000 of taxable income in 2022 and 2023, you’ll move from the 22% federal tax bracket to the 12% bracket when you file your 2023 tax return.
- Standard deductions have also been adjusted by about 7%, which means more of your income will escape taxes. The IRS said nearly 90% of American taxpayers take the standard deduction.
- Increased contribution limits for 401(k) and IRAs allow you to protect more income from taxes. Contributions are made with pre-tax funds and are not taxed until withdrawn unless credited to Roth accounts. Roth accounts are funded with after-tax money and withdrawals are not subject to tax.
Make the rich pay more: With new funding, the IRS is focusing on taxes on wealthy Americans
Why should I file my taxes early?
A refund is usually the biggest incentive to file taxes early. Three out of four taxpayers are likely to get a refund, “and for most Americans, this is the biggest payday of the year,” Steber said.
However, there are other reasons to file early as well. They include:
- Secure your information. Once you file and the IRS gets your return, no one can steal your information and try to file a return on your behalf and steal your refund.
- More time to file an accurate return. If you or your tax preparer finds an error, you have more time to correct it. Filing an accurate return will ensure that you get your refund quickly if it’s due and reduces the chances of any questions or IRS audits.
- It’s time to prepare your finances in case you owe money. If you owe money, it’s better to find out sooner rather than later so you can get the money. Even if you file your taxes early, you still have until the April payment deadline.
When can I start?
Although you can’t officially file your taxes with the IRS until they declare they’re ready to accept them, you can start preparing them once you receive all of your 2023 tax information from your employers, banks and other financial institutions. You should start receiving and collecting this in January.
Once you have everything, you can start preparing your tax forms so they are ready to go as soon as the IRS says “Go!”
If you use a tax preparer, they can put you on a waiting list to automatically file once the IRS opens tax season, and you can be among the first to file your taxes and, hopefully, receive a refund, Steber said.
Medora Lee is the money, markets and personal finance correspondent for USA TODAY. You can reach her at [email protected] and sign up for her free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
