Tax season 2023 is behind us now, and I’d like to thank everyone who came by and allowed us to help them with their tax planning and filing. Tax season is always a challenge, and this year’s seemed to go better because of the lack of new tax laws and the thousands of new hires by the IRS to help with customer service.
We appreciate your patronage in the past and look forward to being of service in the future. Below I present the four main issues and opportunities in the tax world for 2023 as of now. Share it with your friends if you like.
- Improving IRS resources. Not many people were aware of how bad things had gotten at the Internal Revenue Service. Lowered budgets and increased workloads had led to poor morale and many seasoned IRS workers leaving. Even the workforce that stayed on was an older one, and many of them are close to retirement age. The dysfunction at the IRS has caused two big problems- lack of accountability for tax cheats and service issues for the rest of us. With the new money from 2022’s Inflation Reduction Act, the IRS has pledged to improve both enforcement and service.
Increased enforcement means more audits and more oversight, which means that taxpayers and tax professionals will need be more diligent in knowing the rules and backing all claims up with documentation. The increased audits are expected to mainly affect corporations and the top earners with the most complex tax returns. (In 2022 they only audited about 38 of every 1000 returns or .38%) Audits can be triggered by suspicious red flags in tax returns, that computer algorithms and AI are learning to detect.
As for the improved service, we have seen some progress here. Calling the IRS is an option now and most agents can help straighten out notices and letters in just minutes. I still recommend setting up an online taxpayer account both at IRS.gov as well as relevant state agencies such as My Tax Illinois. The tools on these sites are improving and this looks to be where everything is headed in the future.
- 1099K forms for gig workers. Anybody who works in the gig economy (Uber, Ebay, Paypal, AirBNB, Rover, Etsy, Doordash and many more) will get a 1099K form if they earn at least $600 in 2023. This is a much smaller threshold than in past years and will result in millions of these forms going out next January. The 1099K form only shows the gross amounts that were paid by each site. It will be up to each recipient to figure out what their net income was from that business and report it on their taxes (usually on schedule C). If the form is ignored, letters will be generated, and taxes assessed later on in the year.
I urge everybody who plans on working in the gig economy to think ahead and know that the taxes on net income for self-employed individuals can be as much as 30%. To avoid interest and penalties, these taxes need to be paid in quarterly estimates during the year, and not just at tax time. For more details, the IRS has provided a gig economy tax center at this link.
- Scam Alerts for 2023. While tax identity thefts have been less of an issue in recent years, it is still happening. The IRS has provided a “Dirty Dozen” list of tax scams for 2023 that includes bogus tax claims, phishing email attacks, and fake charities. (You can find the list here.) The new scam that’s caught my attention is the usage of artificial intelligence to create believable targeted correspondence with vulnerable Americans. This is from a recent letter to the IRS from a bi-partisan group of US Senators:
“According to recent reporting, one cybersecurity expert demonstrated how ChatGPT can be used to generate scam messages from the IRS targeting families, older Americans, and small businesses. For example, ChatGPT generated a fake email from the IRS claiming that, in order to receive a $1,450 tax refund, an individual needed to respond with personal financial information. ChatGPT also produced a transcript between a scammer impersonating an IRS agent pressuring a senior to pay a fake tax debt. In a third example, a scam message generated by ChatGPT asked a business owner to provide their Employer Identification Number, payroll information, and a list of their employees’ Social Security numbers in order to receive the Employee Retention Tax Credit.”
Bottom line- be very careful out there when anybody ask for money or personal data.
- Energy tax credits expanded for 2023 and beyond.
The Inflation Reduction Act of 2022 totally revamped the older energy credits that had been in place. Instead of a $500 lifetime tax credit for home energy improvements, there is now a credit of up to $1200 per year for things like new air conditioners, hot water heaters, doors, windows, and insulation. Solar and wind energy credits, which were on their way out, were renewed at 30% of the cost. This is a double win- not only do people save on utility costs but they get a tax credit to boot! For more detail you can read about the expanded credits here.
In addition, there are new credits for electric cars and trucks. The rules are complex and involve each vehicle, its components, where it’s assembled, plus the vehicle price and purchaser’s adjusted gross income. But if all criteria are met, up to a $7500 tax credit is available on qualifying purchases in 2023 and beyond. For details on which models currently qualify, go to Fueleconomy.gov.
With a divided congress I don’t expect too many new tax laws in 2023, but you never know. If anything pops up, I will be sure to alert you. In the meantime, have a healthy and successful 2023 and I hope to see you again next year.