Preparing for the 2023 Tax Season
The new year is here and tax season is almost upon us. And that brings with it a new tax filing season and trepidation for many about filing their tax return. To help reduce some of that anxiety, here are a few suggestions on how to best prepare to file your return for 2023.
Organize your 2023 income tax documents
Gather all your 2023 tax documents and put them in one place. For most people, the important tax documents for reporting income include W-2’s and 1099s. Employers are required to send W-2’s and 1099s by January 31, 2024. This means that most of you should have all the necessary tax information by mid-February. Also keep expense information to the extent you intend to use the expense as a tax deduction. If you do not itemize your deductions, which you will not do if your itemized deductions do not exceed the standard deduction, you do not need to keep records for medical expenses, real estate taxes, mortgage interest or charitable donations. The standard deduction for married couples filing a joint return is $27,700 and for individuals it is $13,850. For those of you who are THOR clients, we plan to send a tax organizer to you on or about February 1 to assist you with gathering your necessary tax information.
4th Quarter estimated tax payment
You may want to consider making an estimated tax payment for 2023 if you think you may have underpaid your tax in 2023. Now that the year has ended, you should have a good idea of what your tax return will look like for 2023. If you believe you have underpaid your tax for the year, you still have time to file a 4th quarter estimated tax payment as it is not due until January 16, 2024.
Maximize your IRA and Health Savings Account (HSA) contributions
If you have an IRA or HSA, make sure you are maximizing your pre-tax contributions to them, or at least as much as your budget allows. Unlike other retirement plans, IRAs and HSAs can be funded for 2023 in 2024 if the contribution is made before the tax filing deadline of April 15, 2024. If you are under 50, you can contribute up to $6,500 to your IRA for 2023 and if you are older than 50 you can contribute an additional $1,000. For HSAs, you can contribute $3,850 if you have an individual high deductible health plan and $7,750 if you have a family high deductible health plan. Like an IRA, if you are over 50, you can contribute an additional $1,000.
File early and file electronically
File your tax return as early as possible. The earlier you file, the sooner you will receive your refund if you are entitled to one. Typically, the IRS (Internal Revenue Service) begins to accept returns for the current tax season no later than January 31. The fastest way to obtain your refund is to file your tax return electronically and request that the refund be directly deposited into your bank account. So, if you are currently planning to file your return manually, you may want to reconsider and file electronically.
And with every new year, there also are new tax laws to learn and adjust to. 2024 is no different. Although 2023 did not see any major tax reform legislation, it still brought about some changes for the new year. Here is a quick review of a few of those changes for you to consider.
Income Tax Brackets
Although the income tax rates did not change, the brackets increased by a little more than 5% across the board. This increase is a little more than normal and was brought about by higher inflation in 2023.
The standard deduction also rose by a little more than 5% to $29,200 for married couples filing jointly, $14,600 for single individuals and married individuals filing separately.
Retirement Plan Contribution Limits
401(k), 403(b) and 457 plan contribution limits rise to $23,000. Individual retirement account contributions go up to $7,000. There were no changes to the catch-up contribution as it remains at $1,000.
Gift and Estate Tax
The annual gift tax exclusion increases from $17,000 to $18,000. The federal estate tax exemption amount rises to $13,610,000.
If you have questions and would like to talk with us further, please call us at 513-271-6777. For more THOR reading, click here to go to the Blogs and Market Updates section on our website. Follow us on social media: