Jan. 23 marked the start of the 2023 tax season, the date the IRS began accepting and processing 2022 tax year returns.
While filing your 2022 tax return promises to be just as complicated as always, there are steps you can take right now to ensure your tax filing goes smoothly. Let’s look at some key items to consider before filing.
No above-the-line charitable deductions: During Covid, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.
Some tax credits return to 2019 levels: This means that affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.
Those who received $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year. For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022. And the Child and Dependent Care Credit return to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
Refunds may be smaller in 2023: Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who do not itemize and take the standard deduction will not be able to deduct their charitable contributions.
Eligibility rules changed to claim a tax credit for clean vehicles: There are several changes taxpayers should be aware of, such as the tax credit is generally available only for qualifying electric vehicles for which final assembly occurred in North America and a transition rule for vehicles purchased before Aug. 16, 2022.
Gather 2022 tax documents: The best way to prepare for tax filing is to gather important tax documents — either electronic or paper—and keep them in one place. These documents include but are not limited to: Forms W-2 from employers, Forms 1099 from banks or other payers, Form 1099-K from third-party payment networks, Form 1099-NEC for nonemployee compensation, Form 1099-MISC for miscellaneous income, or Form 1099-INT if you were paid interest, as well as records documenting all digital asset transactions.
Typically, year-end forms arrive by mail or are available online mid-to-late January. Taxpayers should carefully review each income statement for accuracy and contact the issuer to correct information that needs to be updated.
Sign up for an online account: An IRS online account allows taxpayers to securely access their personal tax information, including tax return transcripts, payment history, certain notices, prior year adjusted gross income, and power of attorney information. Filers can log in to verify if their name and address are correct. Notify the IRS if your address has changed and the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
Renew expiring tax ID numbers: Taxpayers should ensure their Individual Tax Identification Number (ITIN) has not expired before filing a 2022 tax return. Those who need to file a tax return should now submit a Form W-7, Application for IRS Individual Taxpayer Identification Number to renew their ITIN.
Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. Applying now will help avoid the rush and refund and processing delays in 2023.
Avoid refund delays and understand refund timing: Many different factors can affect the timing of a refund after the IRS receives a return. Although the IRS generally issues most refunds in less than 21 days, taxpayers should not rely on receiving a 2022 federal tax refund by a certain date.
Making major purchases or paying bills is not wise until the refund is received. Some returns may require additional review and may take longer to process if IRS systems detect a possible error, the return is missing information, or there is suspected identity theft or fraud.
Also, taxpayers should be aware that the IRS cannot issue refunds for people claiming the EITC or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund — not just the portion associated with EITC or ACTC.
Use direct deposit for faster refunds: The fastest way to get a tax refund is by filing electronically and choosing direct deposit. Direct deposit is quicker than waiting for a paper check in the mail. It also avoids the possibility that a refund check could be lost, stolen, or returned to the IRS as undeliverable.
Prepaid debit cards or mobile apps may allow direct deposit of tax refunds. They must have routing and account numbers that can be entered on a tax return. Taxpayers can check with the mobile app provider or financial institution to confirm which numbers to use.
This column is for information only and should not be taken as specific advice. Taxes can be complex and mistakes can be costly. Consider contacting a tax professional if you have questions about your taxes.
Norman G. Grill is managing partner of Grill & Partners LLC, certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien.