January 2023 is here. For young entrepreneurs in the United States, it means recalling last year’s achievements and looking forward to the promise of new beginnings. Seasoned business owners and CPAs however start worrying about the income tax season.
The first 4 months of every year keep entrepreneurs and tax preparers on the tenterhooks. After all, they have to look into the financial data and file income tax before the deadline arrives. But just like every fiscal year, the 2023 tax season also brings new details including increased standard deductions, adjusted tax brackets, and changes in common tax credits and deductions.
In this blog, Finsmart Accounting – trusted by CPAs for accounting outsourcing in India – will share everything important about the 2023 Income Tax season.
Let’s start with the main details first!
What Details to Keep in Mind for 2023 Tax Season?
Here are the key details that business owners and accounting firms in the United States need to be familiar with for a successful tax season 2023:
- Tax filing deadline: Usually, tax filing day is set for April 15th unless this date falls on a weekend or a holiday. This year, the deadline has been set to April 18th of 2023 for all federal tax returns and payments.
- Extension deadline: The deadline for requesting an extension is October 16th of 2023 in case you find it difficult to file the federal tax return by the regular due date.
- Standard deduction increase: The standard deduction for 2022 has been increased to $12,950 and $25,900 for single filers and married couples filing jointly respectively. Need spoilers for the 2024 tax season? The standard deduction rate for 2023 will increase to $13,850 for single filers and $27,700 for married couples filing jointly.
- Tax bracket increase: The income tax bracket went up in 2022, thanks to inflation. One more spoiler so you can prepare in advance for tax season 2024: tax bracket will expand further in 2023.
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- VAT returns: The deadline for submitting Value Added Tax (VAT) returns is one month and seven days after the end of the VAT period, regardless of whether you pay your VAT on a monthly or quarterly basis.
The following are the key dates for submitting VAT returns during the tax season 2023:
- April 7th, 2023
- May 7th, 2023
- June 7th, 2023
- July 7th, 2023
- August 7th, 2023
- September 7th, 2023
- October 7th, 2023
- November 7th, 2023
- December 7th, 2023
- January 7th, 2024
- February 7th, 2024
- March 7th, 2024
Now some of you might say, “Hey, tell us more about standard deductions and tax brackets. Don’t finish this off with a cliffhanger.” Fret not. We will discuss these thoroughly as we proceed further in the blog! Let’s first look at what’s must-have for tax season 2023.
What Do I Need for Tax Season 2023?
One of the biggest problems that young taxpayers in the United States face is limited knowledge about the right documents for filing taxes. Just like you need to show your license, auto insurance proof, and financing documents to the dealership while purchasing a car, you need to fill out and submit the right forms to the IRS to stay tax compliant.
The paperwork begins with a W-2 form. CPAs and accounting firms will need to fill out a W-2 form for clients to show the total wages paid to employees and taxes withheld during the fiscal year. The 1099 form will come up afterward.
We also suggest gathering the following forms during the tax season 2023:
- Mortgage interest statement: Also known as form 1098, a mortgage interest statement will help you report mortgage interest paid for a specific year.
- Investment income statement: This financial statement will show the US government how much your business did financially over a certain period of time.
- Charitable contribution statement: This statement refers to form 1040, Schedule A. Charitable contribution statements are substantiations that IRS requires to claim a donation for tax deductions.
- Receipts: These can be used as proof of payment to claim deductions on taxes, document expenditures on income statements, and authenticate the existence of assets on balance sheets.
Once you get your hands on these forms and organize them accurately, you are all set to file your taxes or taxes for your clients (if you are a young CPA). These forms will also come in handy for tax preparers who are sailing through the tax season for the first time.
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What are Income Brackets and Rates for 2023 Tax Season?
As we said earlier, we won’t leave you with half information. Let’s first explain what exactly income brackets and tax rates are.
The tax rate is basically the percentage of an income or amount of money that has to be paid as tax to the US government. Income brackets are used for distinguishing different groups of business owners whose income falls within defined levels.
The tax rate is based on what tax bracket a business is in. The tax bracket rates went up to a few hundred US dollars because of inflation last year. Here’s the table for quick reference:
| Marginal tax rates of 2022 | Single tax bracket | Married filing jointly tax bracket | Head of household tax bracket | Married filing separately tax bracket |
| 10% | $0–10,275 | $0–20,550 | $0–14,650 | $0–10,275 |
| 12% | $10,276–41,775 | $20,551–83,550 | $14,651–55,900 | $10,276–41,775 |
| 22% | $41,776–89,075 | $83,551–178,150 | $55,901–89,050 | $41,776–89,075 |
| 24% | $89,076–170,050 | $178,151–340,100 | $89,051–170,050 | $89,076–170,050 |
| 32% | $170,051–215,950 | $340,101–431,900 | $170,051–215,950 | $170,051–215,950 |
| 35% | $215,951–539,900 | $431,901–647,850 | $215,951–539,900 | $215,951–323,925 |
| 37% | Over $539,900 | Over $647,850 | Over $539,900 | Over $323,925 |
What are Standard Rate Deductions for Tax Season 2023?
Next, we have standard rate deductions. These are basically portions of income not subjected to tax. Used to reduce the tax bill, IRS adjusts the standard deduction rates each year for inflation. For the 2022 and 2023 tax years, these have been set higher yet again.
Here is the table of the latest standard rate deductions for businesses as well as accounting firms:
| Filling status | 2021 tax year | 2022 tax year | 2023 tax year |
| Single | $12,550 | $12,950 | $13,850 |
| Married filing jointly | $25,100 | $25,900 | $27,700 |
| Married filing separately | $12,550 | $12,950 | $13,850 |
| Head of household | $18,800 | $19,400 | $20,800 |
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What are Deductions and Credits to Consider for Tax Season 2023?
During tax season, accounting firms and CPAs usually find ways to reduce tax liability and help their clients keep more of their hard-earned money. One way to achieve this is through the utilization of tax deductions and credits. Tax deductions lower the amount of income that is subject to taxation while tax credits directly reduce the amount of tax going straight into Uncle Sam’s pocket.
Here’s an overview of some deductions and credits available during tax season 2023:
#1 Charitable deductions
In comparison to the benefits offered in 2021 due to the pandemic, the changes in 2023 result in a decrease in the deductible amount. For instance, the $600 charitable deduction for non-itemizers is no longer available. But it is still possible to deduct qualified charitable donations made in 2023, provided that the individual itemizes their deductions. The limit for this, however, is 60% of adjusted gross income (AGI).
#2 Medical deductions
CPAs and accounting firms who are finding themselves with hefty medical bills this tax season might be able to find at least some tax relief. You can deduct any medical expenses above 7.5% of your adjusted gross income. Just make sure to itemize deductions in order to write off those expenses on the tax return.
#3 Business deductions
Another deduction change to consider during tax season 2023. If you are self-employed, you may be eligible to claim a variety of deductions on tax returns, including travel expenses and home office deductions. Unfortunately, home deductions are not available for clients who work remotely.
#4 EITC credit
The earned income credit (EITC) is a valuable tax benefit for low and middle-income households. It is a refundable credit. Meaning, if the credit amount exceeds the tax a client owes, he will receive the excess as a refund. The following are the income limits to qualify for the EITC credit during the tax year 2023:
- A single filer with no children must have an AGI below $16,480
- A married couple with 3 or more children must have AGI below $59,187
- Individuals won’t be considered eligible for EITC credit if their investment income is over $10,399 if they are married filing separately.
The amount of EITC one can claim will depend on income, filing status, and the number of dependents. EITC could potentially help families and business owners save thousands of dollars on taxes.
Other tax credits that one should look forward to during tax season 2023 are:
- Child tax credit
- Child and dependent care credit
- Education credit
Tax Season 2023: Final Words
There you go!
We told you about the most important aspects of tax season 2023. As American businesses and accounting firms gear up for tax season, it’s important to start preparing as early as possible. The upcoming tax season is expected to be particularly busy, so don’t delay to get your paperwork in order.
If you’re a CPA or accounting firm with stretched resources, consider outsourcing some of your accounting and tax filing work to a reputed outsourced accounting firm like Finsmart.
Our team of experienced tax preparers can help you avoid interest, penalties, and potential disruptions, while also ensuring that nothing falls through the cracks. Plus, we’ll work to maximize your clients’ future refunds and build a solid reputation for your business.
If you have any questions, don’t hesitate to reach out to us at info@finsmartaccounting.com to Our bookkeeping experts will be more than happy to answer them for you!
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