As we approach the 2023 tax season, the Internal Revenue Service (IRS) is encouraging taxpayers to be ready to take important actions in preparation for the tax season.  It is always in the best interest of the taxpayer to start tax preparation before the deadline to ensure an accurate return and avoid processing delays that can slow tax refunds. 

Whether as a first-time taxpayer preparing taxes or a seasoned veteran, being informed of recent tax updates, as well as learning and implementing helpful tips in preparation is always an advantage. Fortunately, the IRS has published a “Get Ready” page that outlines steps individuals can take right now to make tax filing easier in 2023. Along with this page are new things and updates to consider when you file in 2023. 

This article will provide the new and some key items taxpayers should consider before filing next year. 

Reporting rules changed for Form 1099-K  

Taxpayers should receive Form 1099-K, Payment Card, and Third Party Network Transactions by January 31, 2023, if they received third-party payments in the tax year 2022 for goods and services that exceeded $600. 

There’s no change to the taxability of income. All 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’s excluded by law, whether they receive a Form 1099-K, a Form 1099-NEC, Nonemployee Compensation, or any other information return. 

Prior to 2022, Form 1099-K was issued for third-party network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. 

Now a single transaction exceeding $600 can require the third-party platform to issue a 1099-K. Money received through third-party payment networks from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. 

The IRS cautions people in this category who may be receiving a Form 1099 for the first time – especially “early filers” who typically file a tax return during the month of January or early February – to be careful and make sure they have all of their key income documents before submitting a tax return. Extra caution could save people additional time and effort in filing an amended tax return and if they have untaxed income on a Form 1099 that isn’t reflected on the tax return they initially filed, that could mean they need to submit a tax payment with an amended tax return. 

If the information is incorrect on the 1099-K, taxpayers should contact the payer immediately, whose name appears in the upper left corner of the form. The IRS cannot correct it. 

Advice for tax pros: Advice for tax pros: prepare clients who may be impacted by this change now to preempt panicked phone calls when these 1099-Ks start rolling in. Also important is reassuring clients that cash received through third-party payment networks from friends and relatives as personal gifts or reimbursement for personal expenses is not taxable. 

No above-the-line charitable deductions. During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations. 

Advice for tax pros: If you haven’t already had conversations with clients who these changes may have impacted, do so now to prevent conversations about why refunds have deceased – or payment amounts have increased – after the client’s taxes have been prepared.  

More people may be eligible for the Premium Tax Credit. For the tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit. 

[Text Wrapping Break]Advice for tax pros: Review your files to determine clients who may qualify for the expanded credit.  

Eligibility rules changed to claim a tax credit for clean vehicles. Review the changes under the Inflation Reduction Act of 2022 to qualify for a Clean Vehicle Credit. 

Advice for tax pros: Review the changes under the IRA to understand who – and what – qualifies for a clean vehicle credit, and advise your clients to do the same before purchasing a vehicle while relying on the clean vehicle credit.    

Let HWAA help you with your Tax Preparation! 

We have a team of professionals ready to undergird your organization and help eliminate the stress of the upcoming tax season. With our top-tier tax preparation outsourcing services, HWA Alliance of CPA Firms assists businesses in optimizing tax strategy and preparing returns correctly and on time. We have best-in-class professionals that are well-versed in tax return filing procedures, guaranteeing that your productivity and profitability rise through innovative tax planning strategies. Because of our proactive approach to tax strategy and preparation, you will go above and beyond traditional planning to save your company money and time. 

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