Filing tax returns can be daunting, especially if you are doing it for the first time or the tax deadline is upon you. Navigating the tax laws and regulations can be challenging, especially if you are self-employed or have a complex financial situation.
However, with the correct information, you can file your taxes on time, ensure compliance, and avoid penalties. In this guide, our team at Miller Hanover Insurance discusses how to file in 2023.
Tax Prep 2023 – General Information
The Internal Revenue Service (IRS) started accepting income tax returns for the 2022 tax year on January 23, 2023, and the deadline for this season is April 18, 2023. However, you can file an extension request, in which case your filing deadline will be October 16, 2023.
Note that this deadline only gives you more time to file your return, and your tax bill remains due on April 18, 2023.
Penalties
If you don’t file your returns before the due date, the IRS will apply a late-filing penalty of 5% of your tax bill for each late month. This penalty has a maximum amount equalling 25% of your tax obligation.
The IRS also issues penalties on late tax payments. This late payment penalty equals 0.5% of the unpaid tax amount for each overdue month. Note that interest is payable on late filing and late payment penalties.
How to File Taxes in 2023 – Step-by-Step Guide
The deduction threshold for the 2022 tax year is $12,950 if you are a single tax filer and $25,900 if you file jointly with your spouse. However, filing taxes may be beneficial or necessary, even if your income is below this threshold. File your tax returns if:
- You are eligible for tax credits, such as the earned income tax credit or child tax credit
- Your employer withholds money from your income and pays the IRS on your behalf
- You make estimated quarterly tax payments as a business owner, landlord, or investor
Gather All Documentation and Information
Filing your taxes requires sufficient preparation. Whether you file taxes by yourself or work with a professional, you will need to gather all the necessary records and documents:
Personal Information
Ensure you have the correct identification numbers for yourself, your spouse, and your dependents, including social security numbers, tax ID numbers, and identity protection PINs.
Income Records
You must determine your income for the 2022 tax year using Form W-2. This “Wage and Tax Statement” reflects your income and the taxes that your employer withheld.
If you earned additional income from a person or entity that is not your employer, you need to calculate this income from the relevant IRS 1099 forms. Examples of these “information returns” include:
- 1099-B for income from security sales
- 1099-NEC for contract work
- 1099-K for payments via third-party payment systems
- 1099-INT for interest payments
- 1099-LTC for insurance pay-outs
- 1099-DIV for dividends
Deductions and Credits
You can reduce your tax obligation by reporting applicable deductions and credits. A tax deduction lowers your taxable income and can place you in a lower bracket, reducing your tax rate. These deductions include:
- Contributions to a traditional IRA
- Qualified unreimbursed medical expenses
- Mortgage interest payments and property taxes
- State and local taxes
- Charitable donations
- Education expenses
Collect all necessary documentation to support tax credit claims, which are dollar-for-dollar reductions on your tax bill. Popular tax credits include:
- Saver’s credit, including contributions to employer-sponsored retirements plans
- Child tax credit
- Child and dependent care credit
- Earned income credit
- American opportunity credit
- Residential energy tax credits, for example, the solar tax credit
Unlike tax deductions, tax credits reduce your tax bill, not your taxable income. For example, if your tax credits have a value of $1,000, your tax bill will reduce by $1,000.
Calculate Your Tax Obligation
In the United States, we follow a progressive tax system, which means the IRS taxes your income across different brackets, depending on your tax filing status. For example, the first few taxable income brackets for single filers in 2023 include:
- $0 – $11,000: 10% tax rate
- $11,001 – $44,725: 12% tax rate
- $44,726 – $95,375: 22% tax rate
- $95,376 – $182,100: 24% tax rate
Suppose you are a single filer in the 12% bracket with a taxable income of $30,000. Your tax obligation will be 10% on the first $11,000 plus 12% on the remaining $19,000.
File Your Taxes
After gathering all supporting documents, information, and forms, you must complete and file the U.S. Individual Income Tax Return (Form 1040). Using this form, you will report your income, claim all applicable deductions and credits, and calculate your tax obligation.
You can get a copy of this form from a tax professional or the IRS’s website, fill it out, and mail it to the IRS. However, most tax filers prefer using tax software, such as TaxAct, TurboTax, or H&R Block. When using tax software, you enter all your information into the program, which will auto-populate Form 1040 and file it electronically with the IRS.
Another option is to use a tax preparation service, in which case a tax professional will complete and file Form 1040 on your behalf.
Paying Taxes
After filing your return, the IRS will assess and process your refund. In most cases, filers receive their refunds within 21 days as a direct deposit.
If you owe the IRS, you will receive a Notice and Demand for Payment letter from the IRS. You can make this payment using any of the following methods:
- Electronic funds withdrawal
- IRS Direct Pay
- Debit or credit card payment
- Same-day wire transfer
- Cashier’s check, money order, or check
- Cash payment at a retail partner
You may be eligible for an IRS payment plan if you owe $10,000 or less in taxes.
Miller Hanover Insurance – Professional Tax Preparation Services
At Miller Hanover Insurance, we are a professional team of tax preparation professionals who can help you navigate the tax prep 2023 process while minimizing your tax bill. Please call us today to schedule a consultation.