Taxpayers should prepare the necessary documents and information to get the best tax refund. GoBankingRates and Mark Steber, chief tax information officer at Jackson Hewitt, gives pointers on the emerging tax trends, the impact of inflation on tax brackets, and tips on how to get a better tax refund.
Annual Inflation Adjustments
The IRS announced last year that for the tax year 2023, there would be annual inflation adjustments for more than 60 tax provisions. The adjustments include energy credit changes, tax rate schedules, an Earned Income Tax Credit increase, and more.
Steber said taxpayers might see a higher paycheck due to inflation adjustments for 2023 taxes.
Form 1099-K Changes
Last year, the rules for Form 1099-K were changed. Those who used third-party apps, like PayPal, and received more than $600 on these platforms will receive the Form 1099-K. In the past years, Form 1099-K was only issued to taxpayers who received had at least 200 transactions and received more than $20,000.
Steber said the change is intended to close the tax gap by collecting taxes owed on all the income. He added income is always taxable, and the new rule is intended to issue the form much sooner.
There may be some confusion regarding personal transactions, such as a friend repaying a debt, but Steber clarified that this income remains non-taxable.
There are several changes in the provision of filing taxes, and it is recommended to gather all information to get a better tax refund. (Photo: Marca)
Child Tax Credit
Steber revealed that the child tax credit is partially nonrefundable ad is limited to 15% of income from a job or self-employment over $2,500. The amount of credit was also changed which will decrease by $1,600 for children below 6 years old and $1,000 for children 6 years old and above.
He added the child and dependent care credit have reverted to pre-2021 rules in which the expenses are limited to $6,000 for more than one child and $3,000 for one child.
How to Prepare for Tax Season
Steber recommends organizing your tax-related documents into income items, deductions, life changes, and others. Finding a tax professional before the tax filing deadline is also advisable. He said tax professionals could provide tips and insight regarding your unique financial situation rather than making assumptions.
Taxpayers should also update their Form W-4 regardless of getting a new job. The form allows you to control the amount of federal income tax to be withheld from each paycheck. The tax withheld is based on the expected income from the job, how often your employer pays you, filing status, and other income and deductions. Steber recommended if you are going to owe taxes or will have a low refund, it is better to increase your withholding to eliminate or minimize owing taxes or increase your refund.
Read More: 2023 US Tax Season and Taxation: Understanding State vs Federal Income Taxes
