Income Tax Filing Season Starts This Week

Tax filing season officially started for individuals on Monday, January 23rd, when the IRS begins accepting and processing 2022 income tax returns. To prepare, the IRS performed system, form, and instruction updates, as well as other readiness work. That should help tax filing season run more smoothly. Reaching the IRS should also run more smoothly because more than 5,000 new telephone assistors and more in-person staff were added to help support taxpayers.

More than 168 million individual tax returns are expected to be filed this tax season, with the vast majority of those coming before the April 18th tax deadline. This year, people have three extra days after the usual April 15th deadline to file because of the weekend and the District of Columbia’s Emancipation Day holiday, which falls on Monday, April 17th. Taxpayers requesting an extension will have until Monday, October 16th, to file.

The IRS is also accepting business returns and individual returns from taxpayers who are eligible to use the IRS’s Free File program at IRS.gov. Free File allows taxpayers who made $73,000 or less in 2022 to file their taxes electronically for free using software provided by commercial tax filing companies. Find IRS Free File partners at https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

The IRS has three tips to help your tax filing season go more smoothly:

  1. Have the right information before filing. The IRS encourages individuals to have all the information they need before filing a complete and accurate return. Organize and gather your 2022 tax records including W-2 and 1099 earning statements, investment income, student loan interest, charitable contributions, mortgage interest, real estate and personal property taxes, and business financial records.
  1. File electronically. Taxpayers are urged to file returns electronically as soon as they have the tax documentation that they need to file a complete and accurate return. Filing early is a good idea for several reasons. First, processing volumes are lower, resulting in faster refunds. Filing early also gets ahead of potential scammers filing a fraudulent tax return with a valid tax ID number. 
  1. Use direct deposit for all refunds. Electronic tax refunds and payments are the safest and fastest method for financial transactions with federal and state tax agencies. Your tax preparer can usually set them up using authorized tax software. Tax agency websites include links for payments via bank account or credit card. Be aware that credit card payments usually include a fee and that these sites don’t have a refund option.

Starting this week, taxpayers are expected to file more than 168 million individual 2022 income tax returns. The IRS wants this filing season to go as smoothly as you do, so they’ve hired extra taxpayer assistance staff and prepared their systems. Want answers to frequently asked questions and more details? Check it out here https://www.irs.gov/newsroom/irs-sets-january-23-as-official-start-to-2023-tax-filing-season-more-help-available-for-taxpayers-this-year.

The Truth About New IRS Funding

Have you or someone that you know complained about being on hold “forever” when calling the IRS or experiencing the hassle of correcting a tax error? Well, you might want to keep that pain in mind when you read that the 118th Congress opened 2023 with a bill to roll back the $80 million in new IRS funding that was passed as a part of the Inflation Reduction Act of 2022.

Some politicians apparently want to quickly fulfill, or make a gesture to fulfill, a campaign promise to prevent the IRS from getting additional funding. Their stated goal? To save ordinary taxpayers from nuisance audits by all of the additional IRS agents that will be hired with those additional funds. The real plan for that $80 million? Investing in IRS systems and services.

The irony is that the IRS, part of the Department of the Treasury, is vested with administering the tax laws that are passed by Congress. Sure, IRS responsibilities include compliance oversight of the tax law to make sure the government collects funds to pay for the federal budget, also passed by Congress. 

But the IRS does a lot more. They maintain the systems, operations, and staff necessary to provide forms, instructions, taxpayer assistance, and all of the other resources needed for annually processing 261 million tax returns, collecting $4.1 trillion in tax revenue, and issuing 600.1 million refunds totaling more than $1.1 trillion (per the 2021 IRS Data Book https://www.irs.gov/pub/irs-pdf/p55b.pdf). 

No small task.

Even with its existing annual budget of approximately $14 billion, IRS systems are outdated. Its workforce capacity is stretched, especially after the impacts from COVID. Its staff is aging, many nearing retirement. Funding from the Inflation Reduction Act of 2022 will be targeted to invest in services and technology to make tax filing easier for you. But it won’t happen overnight – this is a 10-year plan to finally bring the IRS into the 21st century.

Bottom line, if you want quicker call response and issue resolution from the IRS, not to mention user-friendly systems, get behind the approximately $80 million in new IRS funding that was passed as a provision of the Inflation Reduction Act of 2022. Like any other business or operation, the IRS needs long term investment to sustain itself.

Want to know more about how the IRS is funded and where its budget goes? It’s all here at 

https://www.irs.gov/statistics/soi-tax-stats-irs-operations-and-budget.

New IRS Standard Mileage Rates for 2023

Do you use your personal vehicle for business, charitable, or medical purposes? If the answer is “yes,” you could qualify for an income tax deduction. Most taxpayers use the IRS Standard Mileage Rate to deduct qualified vehicle expenses. Alternatively, you can deduct total actual vehicle expenses if that amount is higher – and you track all of the fuel, repair, and maintenance expense records. Whether you deduct the standard mileage rate or actual expenses, you must track your miles driven during the year.

The standard mileage rate per mile for qualified vehicle use is determined each year by the IRS based on data about the cost of operating and maintaining a vehicle, including passenger cars, vans, pickups, and panel trucks. In recent years, the rate per mile has risen and fallen based on the price of gasoline. With gas prices up significantly since 2020, the IRS recently issued the new standard mileage rates for 2023 that reflect those higher gas prices. 

Beginning on January 1, 2023, the standard mileage rates are:
 

  • 65.5 cents per mile driven for business use, up 3.0 cents from the adjusted rate that was effective for the last six months of 2022
  • 22 cents per mile driven for medical or moving purposes, the same as the adjusted rate that was effective for the last six months of 2022
  • 14 cents per mile driven for charitable purposes to serve a qualified tax-exempt organization. The charitable rate is set by statute, so it doesn’t change.

Using the standard mileage rate can really add up to a substantial tax deduction. Remember that you always have the option of calculating the actual costs of using your vehicle and deducting the higher of the two options. Also, you can choose the standard mileage rate one year and actual expenses the next year, whichever is more beneficial for you. 

No matter which of the two expense methods you choose, you must track your overall mileage driven during the year, and track the miles by category (e.g., business and personal). And if you use more than one vehicle, mileage must be tracked for each vehicle you use for business, charitable, or medical purposes.

Tax deductions for using your vehicle involves a lot of tracking, but the effort can be worth it. You can use mileage tracking apps to help. Once you get your tracking system down, you’ll see that those mileage deductions can add up and reduce the bottom line on your taxes. Want to know more about tax deductions related to the use of your vehicle? Check out the IRS website at https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2023-business-use-increases-3-cents-per-mile.

Don’t Forget Your IRA Distribution

If you were born in 1950 or earlier, it’s time to start calculating the Required Minimum Distribution (RMD) for 2022 from your traditional IRAs, 401(k) plans and other pre-tax retirement plans. Traditional retirement plan contributions are generally made with pre-tax funds and the earnings are tax deferred. But the tax rules don’t allow for those retirement funds to remain untaxed indefinitely. Tax rules for traditional IRA distributions ensure that Uncle Sam gets his share of those funds eventually.

Here are important facts about IRA distributions:

  1. Required Minimum Distribution (RMD) Rules

RMDs are minimum amounts that many retirement plan and IRA account owners must generally withdraw annually after they reach age 72, even if they are still working. Account owners can delay taking their first RMD until April 1 following the later of the calendar year in which they reach age 72 or, in a workplace retirement plan, retire. RMDs are taxable income and may be subject to a 50% penalty if not timely taken. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023, and the second RMD by December 31, 2023, and each year thereafter.

  1. Retirement Plan Distributions 

For beneficiaries of 401(k), 403(b) and 457(b) plans; profit-sharing and other defined contribution plans; and defined benefit plans, the first RMD is due by April 1 of the later of the year they reach age 72, or the participant is no longer employed (if allowed by the plan). A 5% owner of the employer must begin taking RMDs at age 72. RMDs may not be rolled over to another IRA or retirement plan.

  1. Inherited IRA Distributions for Non-Spouse Beneficiaries

Traditional IRAs that are inherited by someone other than the owner’s spouse must be distributed within ten years of the inheritance, not over the life of the beneficiary. Distributions now must be taken within a ten-year period after inheritance. This rule, enacted as part of the 2019 Secure Act, eliminated the options for non-spouse beneficiaries to use inherited traditional IRAs as part of his or her own retirement planning.

Tax rules are complicated and can be hard to follow. Plus, the rules are always changing. The rules about taking distributions from traditional IRAs, 401(k) plans and other pre-tax retirement plans have changed over the years, most recently in 2019. Forgetting to take a required IRA distribution means paying a 50% penalty, even if you didn’t know the rule.

Want to know the IRA distribution rules? The IRS has them for you at https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals. Need help figuring out the tax rules? Get detailed tax advice that fits your situation from a qualified tax professional. You can find one near you at https://www.irs.gov/tax-professionals/choosing-a-tax-professional.