Start Planning for the 2023 Tax Season Now- 3 Tips to Prepare

[Julio Gonzalez]

Many people wait until the end of the tax year to start their tax planning. However, there are a lot of benefits to planning and strategizing at the beginning of the tax year instead. Since 2023 has just begun, now is a great time to start planning for the year. So where do you start? Here are three simple steps on how to prepare for the 2023 tax season!

Get Your Records Organized! Do you struggle with finding all of the documents and receipts needed when it comes tax time each year? Instead, set up an organization system at the beginning of the year. Keep everything in specific folders, track business expenses, etc. These are some of the key documents to keep on hand:

• 1099 - These forms are to report different types of income not paid by your employer.
• 1099-INT - You’ll receive this form if you paid interest during the year.
• 1099-K / 1099-MISC - You’ll receive this form if you are a contractor.
• W-2 - Your employer should send this to you with your wage and salary information.
• Digital Asset Transaction Records - You should have documentation for any purchases, sales or transfers of cryptocurrency, stablecoins, NFTs or other forms of digital assets.

Make Adjustments to Your Withholdings! You can do this by completing a new W-4 and submitting it to your employer. Reflect on last year’s taxes to determine if you were withholding too much or too little. You will also need to make changes for any life events such as getting married or having a child. Remember that while a large tax refund may seem nice, you were essentially giving the IRS an interest-free loan. Look to reduce your withholdings to ensure you aren’t overpaying or at least not overpaying by as much.

Review Any Upcoming Tax Changes! There are a lot of changes happening in 2023 as the pandemic-era financial policies are coming to an end or being phased out. Here are some of the biggest changes

• Earned Income Tax Credit - The Earned Income Tax Credit expansion of 2021 will no longer be in effect in 2023.
• Child Tax Credit - It will revert back to it’s pre-pandemic credit amount. Those who received $3,600 per dependent in 2021 can expect to get $2,000 in 2022 and 2023.
• Bonus Depreciation - The Tax Cuts and Jobs Act of 2018 temporarily increased first-year bonus depreciation to 100%, which remained in place through 2022. Beginning in 2023, this deduction will be gradually reduced until it is phased out entirely in 2027. The rate of bonus depreciation for the 2023 tax year is set at 80%.
• Child and Dependent Care Tax Credit - The Child and Dependent Care Tax Credit reverts to its pre-pandemic baseline in 2022, with credits returning to $2,000 per child and 17-year-olds again being excluded. Those who claimed the credit in 2021 may either be ineligible in 2023 or be eligible for lesser amounts.
• Employee Retention Tax Credit - For most, the Employee Retention Tax Credit sunset on March 12, 2020. While it can still be claimed retroactively through 2025, employers will not be eligible to earn the credit in 2023.
• Third-Party Payment Platforms - Freelancers, contractors and the self-employed may need to file their taxes differently in 2023 than they have before. This is because the American Rescue Plan Act reduces the reporting threshold associated with Form 1099-K. In the past, gig economy workers have not been required to report payments under $20,000 aggregate, but this will change in 2023. Those who receive a total of $600 or more in payments made on third-party platforms such as PayPal or Venmo will be sent 1099-Ks by said platforms.

An added benefit of being prepared so early is that you can easily schedule meetings with your CPA during their slower season instead of frantically trying to get time with them during their busy season. The sooner you get started, the more stress free your 2023 tax season will be!