2023 Federal Tax Reference Guide

Taxes are a part of life. While I don’t mind paying my share of taxes, I have a problem with the tax system’s complexity.

Being a small business owner adds another layer of paperwork and administration. Trying to keep up with all tax credits, deductions, tracking expenses and managing the various tax forms can be daunting.

That’s why we created this extensive tax guide—so you can learn about the basics of tax filing and see how you can get the most benefits and fewest headaches out of filing your taxes.

Note:

How to Do Your 2023 Taxes Like a Pro

During the last quarter of every year, the IRS announces rates and inflation adjustments affecting federal taxes for the coming year, including tax brackets, standard deductions, and more.

Here are some of the important changes for 2023.

2023 Federal Tax Rates, Standard Deductions and Capital Gains

The U.S. tax system uses a marginal tax system, also called a graduated tax scale. When you earn more money, you pay more taxes.

Your income tax varies based on how much income you have, how you earned it and other factors.

Table of Contents

1. 2023 Federal Tax Rates, Standard Deductions and Capital Gains
2. 2023 Federal Income Tax Brackets
1. 2023 Tax Bracket Chart
3. 2023 Standard and Itemized Deductions
1. Common Tax Deductions
2. Should You Take the Standard Deduction or Itemize?
4. 2022 – 2023 Standard Deduction Chart
5. 2023 Capital Gains Tax Thresholds
1. 2023 Long-Term Capital Gains Tax Chart
6. 2023 Child and Earned Income Tax Credits
7. Tax Credits vs. Tax Deductions
1. Common Tax Credits
8. Applying Federal Tax Rates to Your Situation
9. Other 2023 Tax Updates
1. Health Savings Account Contribution Limits Rise
2. Medical Savings Account Thresholds
3. Income Limits for Roth IRA Contributions Rise
4. Employer-Sponsored Retirement Contribution Limits
5. Increased Allowances for Fringe Benefits
6. Estate Tax Exemption and Gift Tax Limits Rise
10. Who Needs to File a Tax Return?
11. Tax Filing Status
12. Common Tax Considerations
1. Estimated Taxes
2. Estimated Tax Deadlines
3. How to File and Pay Estimated Taxes
13. Alternative Minimum Tax – AMT
14. Tax Withholding Adjustments
1. When to Adjust Your Tax Withholding
2. Make Small Adjustments
15. Tax Fraud
16. Audits
17. Tax Tips
1. Tax Tips for Parents
2. Tax Tips for Homeowners
3. Tax Considerations for Freelance Workers
18. How to File Your Taxes
1. Which Filing Method is Best?
2. How to Organize Your Tax Documents
3. When to File Your Taxes
4. What Happens If You Don’t File Your Taxes on Time?
5. How to File an Amended Tax Return
6. What Happens If You Miss the Tax Deadline?
7. What Happens If You Don’t File Your Tax Return?
19. How to Pay Taxes
1. What If You Can’t Pay Your Taxes?
2. What If I Don’t Pay My Tax Bill?
3. How to File a Tax Extension
20. Tax Refund FAQS
1. How Long Does It Take to Process a Tax Return?
2. How Long Does It Take to Get a Tax Refund?
3. What Day of the Week Does the IRS Send Refunds?
21. Year-End Tax Tips

There is no personal exemption for tax year 2023, due to a provision in the Tax Cuts and Jobs Act, which expires in 2025.

2023 Standard and Itemized Deductions

The standard deduction is the amount taxpayers who don’t itemize can deduct from their income before paying income taxes. Itemized taxes include deductions state and local tax (SALT) deductions, property taxes, charitable contributions and more).

The Tax Cuts and Jobs Act significantly increased the standard deduction amount while limiting certain itemized deductions.

Here are the 2023 standard deductions for all filing statuses, according to the IRS:

2023 Capital Gains Tax Thresholds

You must pay long-term capital gains are taxes when you sell an investment that you held for longer than a year. Short-term capital gains occur when you sell an investment that you held for less than a year.

Short-term capital gains are considered income and are taxed at your marginal income tax bracket.

Although the capital gains tax rates for long-term investments remain the same in 2023, the income thresholds have increased.

Single tax payers who earn less than $44,625 in 2023, don’t have to pay capital gains taxes. Taxpayers earning more than $492,300 in 2023 will pay a 20% capital gains tax on investments.

Tax payers who earn between $44,625 and $492,300 pay a 15% capital gains tax.

Other 2023 Tax Updates

Here’s what else to be aware of in 2023, including contribution limits and more.

Health Savings Account Contribution Limits Rise

In 2023, you can contribute $3,050 for self-only HSA coverage (up from $2,850 in 2022), according the IRS.

Taxpayers with family coverage may contribute $7,750, (up from $7,300).

HSA contributors can carry over $610 in 2023, if their employer’s plan permits.

The maximum carryover of unused amounts for cafeteria plans is also $610.

Medical Savings Account Thresholds

The thresholds and ceilings for participants in medical savings accounts (MSAs)are from:

• $2,650 to $3,950 with a maximum out-of-pocket expense of $5,300 for self-coverage in 2023.
• $5,300 to $4,950 with a maximum out-of-pocket expense of $9,650 for family coverage in 2023.

Income Limits for Roth IRA Contributions Rise

For single filers in 2023, your maximum contribution is reduced when your modified adjusted gross income is $138,000 (up from $129,000 in 2022) and eliminated at $153,000 (up from $144,000 in 2022).

For joint filers in 2023, your maximum contribution is reduced when your modified adjusted gross income is $218,000 (up from $204,000 in 2022) and eliminated at $228,000 (up from $214,000 in 2022).

The IRS has not yet announced 2023 contribution limits.

Employer-Sponsored Retirement Contribution Limits

The contribution limit for elective deferrals to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $22,500 in 2023 from $20,500 in 2022. The total amount that you and your employer can contribute to a plan rises to $66,500 from $61,500 in 2022.

The catch-up contribution for taxpayers aged 50 and older increases to $7,500 in 2023.

Increased Allowances for Fringe Benefits

The monthly limit for qualified transportation and parking fringe benefits is $300 for 2023.

Estate Tax Exemption and Gift Tax Limits Rise

In 2023, the federal estate tax exemption rises to $12.92 million from $12.06 million in 2022, according to the IRS.

The gift tax annual exclusion, which is the amount you can give each person before you use up some of the estate tax exemption (or owe gift taxes), increases to $17,000 from $16,000.

Who Needs to File a Tax Return?

Here’s who has to file a tax return in 2023, according to the IRS:

• Self-employed individuals who made $400 or more.
• All freelance income, side hustles, and gigs apply as well.
• Individuals with household employment taxes.
• Individuals with owed Social Security and Medicare taxes for unreported tip income.
• Individuals who took a distribution from a Medical Savings Account (MSA) or a Health Savings Account (HSA).
• Individuals with advance payment on the Premium Tax Credit.
• Those who will qualify for the Earned Income Tax Credit (EIC).
• Those who wish to claim education credits under the American Opportunity Credit.
• Those wishing to claim a refundable Health Coverage Tax Credit.
• Adoptive parents interested in claiming the Adoption Tax Credit.
• Individuals who earned $108.28 or more from a church/qualified church-controlled organization are exempt from employer Social Security and Medicare tax.

Tax Filing Status

The IRS has five basic tax filing statuses:

• Married filing jointly: Comes with lower tax brackets and a high standard deduction. You must have been married by Dec. 31 of the tax year to qualify.
• Married filing separately: While this status comes with more tax liability, it can be beneficial when one spouse makes significantly less than their partner or has more deductible itemized expenses.
• Head of household: This status pertains to single taxpayers who are separated or did not live with their spouse the last half of the tax year, who have a dependent child they paid at least half of the support for during separation.
• Single: If you’re single (meaning neither married nor separated) as of December 31, this is your tax filing status.
• Qualifying Widower: Widowers with a dependent child enjoy the same benefits as married couples filing the year of their spouse’s passing and the next year jointly.

Common Tax Considerations

Estimated Taxes

The U.S. tax system is a “pay as you go” tax system. While you only file taxes once a year, you are technically supposed to pay taxes on your income as you receive it.

Most people do this through payroll deductions. If you don’t withhold estimated taxes from your income, you should pay estimated taxes.

You may be required to pay estimated taxes when you receive a large lump sum of money, self-employment income or investment income.

You must pay the estimated tax if:

1. You expect to owe more than $1,000 when you file your tax return, and
2. You expect your withholding and credits will not exceed:
   • 90% of your current year’s tax liability, or
   • 100% of the tax shown on your previous year’s tax return (whichever is lower).

In other words, you need to ensure your withholdings and credits are at 90% of your current tax year obligation, or at least 100% of what you owed last year (110% for high-income earners).

If your withholdings are less than the lesser of these two amounts, then you should pay estimated taxes.

Estimated Tax Deadlines

Estimated taxes are paid four times throughout the year on the following dates (or the first business day following the date, if it falls on a weekend or holiday).

• April 15
• June 15
• September 15
• January 15

Estimated taxes are due by the deadline, even if you have requested a tax deadline extension.

How to File and Pay Estimated Taxes

The IRA allows taxpayers to pay estimated taxes by mail or electronically.

• Pay by mail: Use IRS Form 1040-ES (download pdf here) to calculate your estimated taxes. Then fill out a voucher on the form to send along with your estimated tax payment.
• Pay electronically: If you prefer to pay your taxes electronically, you can sign up for the Electronic Federal Tax Payment System (EFTPS) to pay your estimated taxes online. It can take up to 2 weeks to receive your PIN in the mail, so plan accordingly.

Alternative Minimum Tax – AMT

Estimated taxes aren’t the only unexpected tax situation you might encounter. The AMT is an alternative method of figuring your tax.

Congress created the Alternative Minimum Tax in the 1960s to prevent high-income households from receiving too many tax deductions and credits, thus avoiding their “fair share” of taxes.

Modern tax software can determine if AMT applies and calculate it automatically.

If you decide to do it yourself, fill out IRS Form 6251 to determine if you need to pay the AMT. Then, compare the outcomes after completing your tax normal tax return and your return using AMT rules.

• If your AMT Calculation less than your regular tax return: pay your taxes as usual.
• If your AMT Calculation more than your regular tax return: pay the AMT amount, which will equal the regular tax, plus the difference between the two.

AMT rules prohibit certain tax credits and deductions, including the standard deduction, state and local tax deductions and property tax deductions, up to a certain amount.

Taxpayers who live in a high-tax state and have children are more likely to pay additional taxes under AMT rules than a single person or a family in one of the lower-tax states.

Here’s more information on Alternative Minimum Tax rules.

Tax Withholding Adjustments

The ideal tax refund is somewhere close to zero – that means you had the ideal amount withheld from your paycheck.

However, sometimes you may receive a large refund or you may discover that you owe the IRS money. In either case, you can adjust the amount the IRS withholds from your paycheck to avoid future surprises.

Use the personal allowances worksheet on IRS Form W-4 to adjust your tax withholding.

When to Adjust Your Tax Withholding

There are times when you want to make a proactive change to your tax withholding. Some of these include:

• Large Tax Liability: When you know you currently owe (or will owe) the IRS a large amount of money.
• When You Anticipate a Large Tax Refund: While getting a large refund is nice, it’s better to have those funds available to you as you go. For example, receiving a $5,000 refund means you overpaid just over $400 per month to the IRS. If you’d invested that money instead, it could have been gaining returns during that time.
• Significant Life Change: Certain life events, like getting married or divorced, having a baby or experiencing a death in the family can impact your tax situation. You may wish to adjust your withholding if any of these occur during the tax year.

You can use the IRS tax withholding calculator to recalculate your personal allowances each time a new life change happens.

Tax Fraud

Tax fraud is a growing crime. Discovering you’re a victim of tax fraud often occurs when you try to file your tax return electronically and discover someone has already filed a return using your Social Security Number.

When this happens, the IRS will reject your return. At that point, you must contact the IRS and open a case with them. Other ways you may discover tax fraud include:

• Receiving a letter from the IRS (never an email or phone call – those are phishing scams trying to get your personal information!)
• Receiving one or more W-2 forms from employers you have never worked for

Note:

Should I Be Worried if I Get a Letter From the IRS?

If you receive a letter from the IRS, it may say:

• That multiple income tax returns were filed for the same year,
• That W-2s or 1099s were filed for the tax year in question that didn’t appear on a specific tax return, or
• That there is a discrepancy in the amount of tax that you owe on one or both tax returns.

Contact the IRS via phone, mail, or in person if you discover you are the victim of tax fraud. You may also wish to start monitoring your credit reports, as it is likely you may soon become a victim of identity theft.

Audits

One of the best things you can do to avoid an IRS tax audit is check your tax return for errors. Additionally, if you fill out your forms incorrectly, you might be red-flagged for an audit.

You could face a tax audit if your forms are sloppy or illegible. This is an excellent reason to use tax software and file your tax return electronically.

Here are a few more red flags that might initiate a tax audit:

• Home Office Tax Deduction: You can only take a home office tax deduction if the space is used just for your business. In my old home, my “office” was also used for storage, which had an impact on how I was able to claim the tax deduction.
• Big Tax Deductions: If you seem to be claiming more charitable deductions than others at your income level, the IRS might red flag your tax return. Make sure you have all the documentation to back up your donations.
• Cash: Casinos, banks and others must report cash transactions over $10,000. If you fudge on these numbers, the IRS could find you out. Businesses that operate using cash are also likely to be red-flagged for an audit.
• Mismatch with 1099s: If what you report is less than what your 1099s and W-2s say, the IRS may audit you. Understand, too, that starting in 2011, PayPal and similar businesses were required to start reporting transactions on the 1099-K form. So keep good records for all your businesses, including side gigs.

The IRS may also randomly select individuals for audits. So it’s possible you may be audited even if none of the above issues are present.

Keep detailed tax records or hire a tax preparation service or accountant that offers audit protection.

Some tax software programs offer audit protection as an add-on feature.

Tax Tips

Here are a few tax tips for parents and homeowners.

Tax Tips for Parents

• Get your child a social security number: You will need a Social Security Number to claim them on your taxes, as well as apply for medical insurance and other programs.
• Take advantage of the child tax xredit: The child tax credit could give you a tax credit of $2,000 each year your child is under 17. This tax credit may not be available to everyone as the credit begins to phase out once your modified adjusted gross income is above a certain amount.
• Update your W-4 with your employer: Your W-4 is the form you file with your employer to let them know how much money they need to withhold from your paycheck to cover your local, state, and federal income taxes. Claiming your child on your taxes as an additional dependent could increase your monthly take-home pay.
• Use pre-tax dollars for childcare: Some employers offer a childcare reimbursement or flexible spending account, which you can useto pay for childcare.
• Use the child and dependent care credit. You can claim the child and dependent care credit on your 1040 by attaching Form 2441. For more details on eligible expenses, download IRS Publication 503, Child and Dependent Care Expenses.
• Start a college fund: Many states offer a 529 College Savings Plan. The added benefit is that earnings grow tax-free and withdrawals can be made tax-free when the funds are used for qualified educational expenses. Coverdell Educational Savings Accounts (ESA) are another educational savings option that may offer you tax benefits.
• Open an IRA for your child: You can only open an IRA for your child if he or she has earned income; interest earned from a savings account doesn’t qualify as earned income.

Tax Tips for Homeowners

• Qualified medical home improvement deductions: The IRS allows homeowners to deduct the cost of home improvements that are deemed necessary for medical reasons (such as a ramp, widening doorways for wheelchair access, adding handrails and similar home improvements.
• Home office deductions: No matter if you run your own business from home or work for someone else, there are qualified home office tax deductions that you can claim when you use any portion of your residence in connection with a trade or business.
  • You must use a specific room or identifiable space as your office. The only exception to this “exclusive use” rule is when you use part of your home for business storage purposes or as a daycare facility.

Tax Considerations for Freelance Workers

Income Tax Payments

Employees paid on a W2 basis have their income tax, social security tax and FICA tax withheld from their paychecks.

However, 1099 contractors don’t have anything withheld from their payments. If you receive a check for $500, you receive the full amount. Nothing is withheld for taxes.

This means income taxes are your responsibility. Your income will be reported to the IRS on Form 1099 and it is your responsibility to pay taxes on it.

Many freelancers choose to pay quarterly estimated taxes. This breaks up your tax payments throughout the year and keeps you on the right side of IRS requirements.

Business Deductions

You should keep detailed records of your income and expenses. Categorize these expenses so you have a good idea of how much you spend in each category. IRS rules may classify certain expenses differently.

It’s much easier to do this as you go, instead of trying to play catch up when your tax return is due.

The business structure you choose – such as an LLC or corporation – may also require you to maintain separate funds in a business checking account or savings account. You may also wish to open a business credit card, which could offer unique rewards programs and itemized spending reports.

How to File Your Taxes

There are three ways to file your tax return:

• DIY: Some individuals file their taxes completely on their own, manually filling out the IRS’s form 1040. Filers can mail in a physical copy of their documents or submit an electronic version.
• Tax software: Alternately, you can file (sometimes for free) with some of the best tax software programs on the market. These services help you to seamlessly import documents, check for errors, and take the confusion out of tax preparation.
• Professional: With a CPA or enrolled agent, you can get expert advice and professionally prepared taxes.

How to Organize Your Tax Documents

Organizing your tax documents should be a year-round task. Keep detailed records of everything related to your tax return. Scan everything into your computer and regularly back it up to maintain a long-term record and make filing easier.

Before you do your taxes, make sure you have:

• Your Social Security Number and the SSNs of everyone listed on your tax return
• Bank account and routing numbers for electronic payments
• Your EFTPS information if you file electronically
• List of previously paid taxes: self-employment tax, estimated taxes, property taxes, etc.
• W-2s, 1099’s, 1098’s and related tax documents
• Interest paid on a mortgage or student loans
• Charitable donation receipts, statements from donor-advised funds, etc.
• Contributions to tax-deferred retirement accounts
• Homebuyer tax credits
• Child care and education costs
• Medical costs and receipts (if you can deduct them)
• Other related documents

This article provides a more in-depth guide to organizing your tax records.

When to File Your Taxes

Tax returns are generally due on April 15, unless it falls on a weekend or holiday. In those cases, your tax return is due on the following business day.

How to File an Amended Tax Return

If you think you may want to amend a return, below are five places to start:

1. Change in Status
2. Math Errors
3. Schedule A-Itemized Deductions
4. Schedule D-Capital Gains and Losses
5. Schedule C-Profit or Loss from Business

You usually have three years to file an amended tax return, dating from when you filed the tax return that needs correction. So if you didn’t take a credit on your most recent tax return, you can file your amended return and possibly get a tax refund.

The proper form for filing an amended tax return is 1040X. This guide provides a complete overview of when to file an amended tax return.

What Happens If You Miss the Tax Deadline?

Some people aren’t required to file a tax refund, especially if they have a lower income. And you don’t technically need to file a tax return if the IRS owes you money. But, you can’t receive your refund if you don’t file your tax return. So it’s a good idea to go ahead and file.

Finally, the longer you take to file your tax return, the longer you must wait to receive your refund.

On the other hand, you want to file your tax return if you owe the IRS money.

If you are running out of time to file your return, you want to do three things:

• File a tax extension,
• Make estimated payments, then
• File your tax return before the Oct. 15 deadline.

What Happens If You Don’t File Your Tax Return?

If you missed the deadline and haven’t filed for an extension, nothing happens if you don’t owe taxes. However, you won’t get a refund if the IRS owes you one.

If you owe money and fail to file a tax return, the IRS can charge you a penalty and interest. But you need to file your tax return if you owe money.

• Failure to file or (FTF) penalty: 5% per month or partial month up to a 25% maximum.
• Failure to pay (FTP) penalty: 0.5% per month or partial month up to a 25% maximum.
• Both FTF and FTP penalties: the FTF penalty is reduced by the FTP penalty.

The IRS may also assess penalties for underpaying your taxes or not paying estimated taxes.

How to Pay Taxes

You can pay your tax bill by mail with a check or online. Paying online is faster and more secure but may come with a charge if you use your credit card to pay your taxes.

You may consider sending checks by certified mail to ensure the check was delivered.

What If You Can’t Pay Your Taxes?

You still need to file your tax return or an extension, even if you cannot pay your taxes. After that, you should contact the IRS to tell them that you know you owe money but cannot pay it.

The IRS may allow taxpayers to have an extension to make the payment or to enter into a payment plan.

What If I Don’t Pay My Tax Bill?

The IRS can file a Notice of Federal Tax Lien if you don’t pay your taxes. This can hurt your credit score and cause other financial and legal difficulties.

Failure to file your return or to pay your taxes can result in fines, ruined credit, or even jail time.

How to File a Tax Extension

If you need more time to complete yout tax returns. you can easily file for a free tax extension.

Filing Taxes Late?

How and When to File for a Tax Extension

Filing for a tax extension extends the deadline to file by six months, but it does not change the date you must pay taxes (if any are due. So it’s a good idea to at least estimate how much taxes you might owe and send the IRS a check before the deadline. You can formally wrap up the paperwork later.

Filing a tax extension is easy and free. Simply download IRS Form 4868, fill it out, and mail it to the IRS. Or, you can file an electronic extension through most of the major tax software programs, including TurboTax or H&R Block Online.

Military Members and Overseas Citizens May Have Longer Extensions

Expatriates and some military members may qualify for additional tax extensions. This is especially true for military members who served in tax-free zones in the current or previous year.

This article provides additional information regarding military member tax deadline extensions. American civilians working overseas may also be able to file for a longer extension.

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