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We are halfway through 2023 and it is never too early to start planning for your next tax filing. There has been some significant changes to the tax laws that will impact both individuals and businesses alike. From changes in tax rates and brackets to new deductions and credits, it’s important to stay informed and prepared for what’s ahead. Here are a few of the key changes to keep in mind.
For Individual taxpayers, both the income tax rates, and capital gains tax rates are staying the same for 2023. However, because of the recent inflation, there has been a widening of the brackets. Overall, the IRS boosted both sets of brackets by approximately 7%. This means that you could land in a lower tax bracket during 2023. Feel free to check out the detailed brackets at https://taxfoundation.org/2023-tax-brackets/.
The Inflation Reduction Act brought an expansion of Green Energy Credits. The Clean Energy Credit applies if you have installed an alternative energy system in your home. This credit is 30% of the cost of the equipment and installation. The Energy Efficient Home Improvement Credit has been completely reworked for 2023. There is no longer a lifetime credit limitation, but instead there is an annual credit limit. The amount varies depending on the improvement(s) made. Another credit that has significant changes for 2023 is the Clean/Electric Vehicle Credit. The passing of the 2022 IRA implemented additional requirements to qualify, but if you do it could be worth up to $7,500.
If you use a third-party settlement company for the sale of goods or services, there are new rules regarding the reporting of this income. If you are paid more than $600 through PayPal, Venmo, Ticket Master, etc. you will receive a Form 1099-K showing the gross revenue received. As of right now, the IRS is stating that each transaction must be listed separately. So, if you are going to sell those tickets online, you will need to keep a detailed list of all items sold including date and original purchase price. Transferring money through these services to family or friends should not trigger a form to be issued.
As mentioned above, individuals are not the only group with changes. There have been updates to the business tax rules as well. The limit for bonus depreciation on qualifying property has been reduced from 100% to 80% for 2023. It will continue to phase out until it reaches 0% beginning with 2027. Additionally, meals expense will return to pre-pandemic limits and cap out at 50%. These two items could make an impact on your bottom line and therefore, your tax liability. Another change that directly impacts business owners and self-employed individuals is the Qualified Business Income Deduction. The deduction of 20% has not changed, however the phase-out threshold has been increased.
Based on the changes that have been implemented, it’s clear that taxpayers will need to be more vigilant than ever when it comes to understanding their obligations and taking advantage of available credits and deductions. Whether you’re an individual taxpayer or a business owner, taking the time to educate yourself on the latest tax law changes can help you stay ahead of the curve and make the most of your financial situation. Tax planning will be key for 2023.