Tax season is upon us! Here's what you should know to make filing easier.
A new parent? Recently married? Many different factors play a role when it comes to tax returns. Here's what you should know to be well prepared this season.
It's almost a new year, but there's still something related to 2023 that needs to be sorted out: your taxes.
Tax season typically begins in late January, when the IRS officially begins accepting and processing tax returns. Typically, you have until April 15 to file your tax return, unless it is a holiday or weekend, giving you more time to file your taxes.
However, professionals strongly advise most people to prepare now and get it done as quickly as possible, if for no other reason than to get their refund quicker.
“Refunds fell a bit last year due to waning pandemic benefits, but I think they have calmed down and could rise due to inflation adjustments,” said Mark Steber, chief tax officer at tax consultant Jackson Hewitt.
Last year, the average tax refund through the April deadline was $2,753, compared with $3,012 a year earlier, when pandemic-related benefits helped boost refunds, the IRS said.
How does inflation affect my taxes and refund?
The IRS makes annual inflation adjustments to many tax provisions, including tax brackets, standard deductions, 401(k) and IRA contributions. Here are just a few examples of how these tweaks could help you with your taxes this year:
- Income limits for 2023 tax brackets were raised by a record 7% due to rising inflation. So if your taxable income stays relatively constant, you could end up in a lower tax bracket, which means a lower tax rate.
For example, single filers with taxable income of $41,776 to $89,075 were in the 22% federal income tax bracket last year. For 2023, this range applies to single filers with taxable income of $44,725 to $95,375.
So if you have taxable income of $42,000 in 2022 and 2023, you will move from the 22% federal tax bracket to the 12% tax bracket when you file your 2023 tax return.
- Standard deductions have also increased by about 7%, meaning more of your income will escape tax. According to the IRS, nearly 90% of American taxpayers take the standard deduction.
- Increased contribution limits for 401(k)s and IRAs allow you to shelter more income from taxes. Contributions are made with pre-tax money and are not taxed until withdrawn unless they are deposited into Roth accounts. Roth accounts are funded with after-tax money and withdrawals are not taxed.
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Why should I file my tax return early?
A refund is usually the biggest incentive to file your taxes early. Three out of four taxpayers will likely receive a refund, and “for most Americans, it's the biggest payday of the year,” Steber said.
However, there are other reasons to file early. They include:
- Blocking your information. Once you have filed your tax return and the IRS has received your tax return, no one can steal your information and attempt to file a tax return on your behalf and steal your refund.
- More time to file an accurate tax return. If you or your tax advisor find an error, you will have more time to correct it. Filing a correct refund will ensure you receive your refund quickly when it is due and reduce the risk of IRS questions or audits.
- Time to prepare finances in case you owe money. If you owe money, it's better to find out sooner rather than later so you can come up with the money. Even if you file your taxes early, you still have until the April deadline to pay.
When can I start?
Although you can't officially file your taxes with the IRS until it's ready to accept them, you can start preparing once you've received all of your 2023 tax information from employers, banks, and other financial institutions. You should start receiving and collecting these in January.
Once you've received everything, you can start preparing your tax forms so they're ready to use as soon as the IRS says “Go!”
If you hire a tax preparer, they can queue them up to be automatically filed as soon as the IRS opens tax season, and you can be among the first to file taxes and hopefully get a refund, Steber said.
Medora Lee is a money, markets and personal finance reporter for USA TODAY. Reach her at [email protected] and sign up for our free Daily Money newsletter every Monday through Friday morning for personal finance tips and business news.