Author: Carolmycpa

Filers should know about changes to common credits

The Child Tax Credit, the Earned Income Tax Credit and the Child and Dependent Care Credit have reverted to pre-COVID levels. This means that taxpayers will likely receive a significantly smaller refund compared to last year.

  • For 2022, the Child Tax Credit is worth $2,000 for each qualifying child. A child must be under age 17 at the end of 2022 to be a qualifying child.
  • For the Earned Income Tax Credit, eligible taxpayers with no children may get $560 for the 2022 tax year.
  • For the Child and Dependent Care Credit, taxpayers may receive up to 35% of their employment-related expenses for 2022.

IRS issues standard mileage rates for 2023

The IRS issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2023, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 65.5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.
  • 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022.
  • 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.

These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

More taxpayers will receive a Form 1099-K

The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable…

The Internal Revenue Service reminds taxpayers earning income from selling goods and/or providing services that in early 2023 they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year.

There is no change to the taxability of income; the only change is to the reporting rules for Form 1099-K. As before, income, including from part-time work, side jobs or the sale of goods, is still taxable. Taxpayers must report all income on their tax return unless it is excluded by law, whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.

Taxpayers should review the 401(k) and IRA limit increases for 2023

The amount individuals can contribute to their 401(k) plans in 2023 will increase to $22,500 — up from $20,500 for 2022. The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs, and claim the Saver’s Credit will also all increase for 2023.

Taxpayers can read the technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2023 in Notice 2022-55 on IRS.gov.

Taxpayers with an outstanding tax bill should consider an Offer in Compromise

When reviewing Offer in Compromise applications, the IRS considers the taxpayer’s unique set of facts and any special circumstances affecting the taxpayer’s ability to pay…

An Offer in Compromise can be an effective way individuals and businesses to settle federal tax debt. This federal program allows taxpayers to enter into an agreement, with the IRS, that settles a tax debt for less than the full amount owed. Sometimes taxpayers are able to settle for significantly less, especially if they have low income and few assets.

This type of agreement is an option when taxpayers can’t pay their full tax liabilities or when paying the entire balance owed would cause financial hardship. The goal is a compromise that suits the best interests of both the taxpayer and the IRS.

When reviewing OIC applications, the IRS considers the taxpayer’s unique set of facts and any special circumstances affecting the taxpayer’s ability to pay.

Individual taxpayers and business owners should review the IRS’s Offer in Compromise Booklet to learn how these agreements work and decide if it could help them resolve their tax debts.

Taxpayers should stay on top of taxes all year to avoid a surprise tax bill…

“All taxpayers should review their federal withholding each year to make sure they’re not having too little or too much tax withheld.”

The next tax season seems far away, but this is actually the perfect time for taxpayers to review their withholding and estimated tax payments. Because federal taxes are pay-as-you-go, it’s important for taxpayers to withhold enough from their paychecks or pay enough in estimated tax. If they don’t, they risk being charged a penalty.

Adjust tax withholding
For employees, withholding is the amount of federal income tax withheld from their paycheck. The amount of income tax an employer withholds from an employee’s regular pay depends on two things:

  • The amount they earn.
  • The information they give their employer on Form W–4.

All taxpayers should review their federal withholding each year to make sure they’re not having too little or too much tax withheld.

IRS sending letters to more than 9 million potentially eligible families who didn’t claim stimulus payments, EITC, CTC, other benefits

the only way to get the valuable benefits is to file a 2021 tax return

The IRS is sending letters to more than 9 million individuals and families who appear to qualify for a variety of key tax benefits but did not claim them by filing a 2021 federal income tax return. Many in this group may be eligible to claim some or all of the 2021 Recovery Rebate Credit, the Child Tax Credit, the Earned Income Tax Credit and other tax credits depending on their personal and family situation. These and other tax benefits were expanded under last year’s American Rescue Plan Act and other recent legislation. Even so, the only way to get the valuable benefits is to file a 2021 tax return. Also, to help people claim these benefits, without charge, Free File will remain open for an extra month this year, until Nov. 17.

The Taxpayer Bill of Rights: Protection for all taxpayers

The Taxpayer Bill of Rights outlines the ten specific rights all taxpayers have any time they interact with the IRS.

Two key elements of the IRS mission are to treat taxpayers with dignity and respect, and to provide them a positive customer experience. The Taxpayer Bill of Rights outlines the ten specific rights all taxpayers have any time they interact with the IRS.

These rights cover a wide range of topics and issues and lay out what taxpayers can expect in the event they need to work with the IRS on a personal tax matter. This includes when a taxpayer is filing a return, paying taxes, responding to a letter, going through an audit or appealing an IRS decision.

https://go.usa.gov/xt3mX