 Internal Revenue Service IRS tax news. Get ready for taxes. What's new and what to consider when filing in 2023? Honestly, why is it that whenever the IRS says get ready for taxes, it makes me think of like a cruel nanny getting ready to wash a poor five-year-old child's mouth out with soap? Because the child committed the grave error of trying to stop the cruel nanny from dressing up her innocent teddy bear in BDSM leather buns, putting them in a cage and proceeding to whip the beloved teddy bear through the bars? All the while telling the five-year-old child, don't worry, teddy likes it. And a five-year-old child screaming in horror, which of course led to the soap mouthwashing. Similarly, the IRS is like, don't worry, your checking account likes it when we clean it out a few times a year. It's like a healthy detox for the checking account. Or possibly it's better compared to a nice healthy checking account enema. And it's like, no, no, dang it. You lying, gaslighting, sunspit. My checking account does not like this abusive treatment. Yeah, maybe if it was performed by like one of those ladies from Hooters or something. No, no, no, Dave. This is not okay. The IRS responding, that's it. Get ready for us to wash wash out your mouth with taxes. I'm sick of my editor telling me what to do without any kind of explanation. Okay, I have a plan. I know exactly what. Now stay close. Stay close. Do exactly as I say. Ready? Get her! My editor feels like I know what I'm talking about. I'll tell you what. Get her! That was your whole plan. Get her! We're scientific. Okay, let's hear it, Phil. What? What does that mean, Phil? It wasn't a question. I was telling you what. I'll tell you what. Don't talk back to me when I'm telling what. Yeah, but you didn't convey any actual information, Phil. You just said what. I mean, I don't understand the point. You don't even know what that means. Oh, I see, says Phil. I'll tell you why. Okay, Phil, you tell me why. Why? What? No, I already told you what. Now I'm telling you why. Stop talking back when I'm telling you stuff. Stop talking. But you did it again, Phil. I mean, there's no actual content to what you're saying. I mean, where is this going? Oh, I'll tell you where. I'm sorry, that wasn't a question. Okay, Phil. Don't tell me where. Please. Honestly, I think the problem is that the words who, what, when, where, and why are designed to make questions. If you just tell somebody what, why, or where, you're just messing up the whole, like, language system, Phil? You, you're not doing it right. Oh, I'm not messing up the whole language system. You just don't understand how it works. I'll tell you how. This is ridiculous, utterly ridiculous. I are 2022-213 December 6, 2022 Washington. The Internal Revenue Service encouraged taxpayers to take important actions this month to help them file their 2022 federal tax returns. This is the second in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A get ready page. There's a link to that here. Outline steps taxpayers can take now to make tax filing easier in 2023. So obviously we're wrapping up 2022. We're generally filing by April 15 of the following year, 2023. I personally find one of the things that you can do to make the tax filing a little bit easier is to meditate on being okay with loss. Just do some meditation. Pain. Life is pain. And so you're just going to lose stuff all the time, and you just got to, you know, be okay with that. And then it makes, it makes a little bit easier. So that's one tip. I'm not sure that Iris focuses on that one. But in any case, here's what's new and some key items for taxpayers to consider before they file next year. Reporting rules change for form 1099K. So the IRS is trying to tighten their strangled hold on the whole 1099 reporting. So they've been working on that diligently. Taxpayers should receive form 1099K payment card and third party network transactions. There's a link to that here by January 31, 2023. If they receive third party payments in tax year 2022 for goods and services that exceeded $200 of fairly low threshold there. So there's no change to the taxability of income. So note, if you have a business, then you might be reporting say on a Schedule C, for example, or a S corporation or an LLC or something like that. But no matter whether you get a 1099 or not, you should be reporting the income because that's the general rule. The 1099 is a form that's going to generally help the IRS to double check that you're reporting your income and just to recap on how this works because I think it's just a useful frame of mind to understand the whole system. We have an income tax. That means we're taxed when we make income. And so the IRS has an incentive to try to double check and determine whether or not we made income. It also means that we're not taxed on gross income oftentimes, but oftentimes net income because it would not make sense to tax somebody on their gross income when they had to spend a whole lot of money in order to generate that income. So on an income tax, what makes sense to have net income be the taxable item, which means that things you pay for to generate the income are usually going to be deductible kind of items, especially if they're business kind of expenses. And so the IRS has leverage on the deductions, the money going outside of things because every time you pay someone else is getting the income and they could say, well, if you want the deduction for paying out that money, the person you gave it to, we need to know that they got the money as income so that we can go after them. So you need to rat them out basically. And that's what the 1099 is. It's saying, hey, this other person, it has income, go after them. Don't go after me. I want the deduction. And so that we can see that most clearly in the W2 form, which clearly does not only have the reporting, hey, go after that guy, don't go after me. Here's the W2. They've got the earnings. They also make the employer withhold the money from the wages before they even get it. But if you're talking about other kinds of incomes, business income, this is why I think the IRS is a little skeptical of the whole gig economy system, because now you have smaller individual businesses and the IRS is going to try to see, well, how can I collect my income on that? Well, they're going to tighten up the 1099 rules. The platforms on the gig economies have more of a problem because the platforms are not really employing anybody. They're actually just connecting people together. It's allowing small businesses to flourish due to the connectability. It's like having a new silk road or something in the old times. So now you've got people that can connect that couldn't connect before. But the IRS is going to make that connection more difficult as they try to get their taxes by trying to get someone to issue the 1099. And you can see where the hubs would be for them to try to do that. Either the platforms that are connecting people or the payment tools like a PayPal and the intermediary payment tools are going to try to force them to issue the 1099s, which could have some negative impacts economically from the structure of the business. But that is what it is. So 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. So anything you earn by definition of the tax law is usually taxable unless they specifically exclude it, right? Whether they receive a form 1099K, a form 1099NEC, non-employee compensation, or any other information return. So obviously, you're still supposed to report any business income. It's just whether or not the IRS has the double check to look over your shoulder to make sure you reported it. So prior to 2022, form 1099K was issued for third-party networks transactions, only if the total number of transactions exceeded 200 for the year. And the aggregate amount of these transactions exceeded 20,000. So that's a much smaller requirement. And one of the things that this is going to do is going to make it so that the platforms have to be fairly established. You have to have a fairly established platform to kind of comply with these kind of laws. So oftentimes, these kind of laws actually solidify the single-player platforms, meaning monopolization of a platform because big companies actually like these kind of rules to some extent because it drives out their competition that can't, their startups and they can't really compete with those rules. So in any case, it is what it is. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. So now a single transaction exceeding $600 can require the third-party platform to issue a 1099K. Money received through third-party payments networks from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. So they're going to have to come up with a system where they can distinguish the payments that you're making through these platforms like a PayPal or something, which are business related or which are just money transfers to friends and family. So the IRS cautions people in this category who may be receiving a form 1099 for the first time, especially, quote, early filers, end quote, 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. A little extra caution could save people additional time and effort related to filing an amended tax return. And if they have an untaxed income on a form 1099 that isn't reflected on the tax return they initially file, they could mean they need to submit a tax payment with an amended tax return. So if you mess up and you don't include the income, then you might have to amend the return possibly. So if the information is incorrect on the 1099K, taxpayers should contact the payer immediately whose name appears in the upper left corner of the form. So if the platforms mess up and give you a 1099 or something like that that was an actual income, that's kind of a problem because you can't just file the tax return and get it solved on the IRS side of things because the IRS now has that 1099 and thinks that you're cheating them if you do that. So you have to go to the actual platform and try to fix it there and say you've got to send another 1099. It doesn't matter the one that you got, you're not really the key component of this 1099. Giving it to you is not real, that's what the IRS kind of says they're doing. We're trying to inform you in this, no, they're giving it to the IRS. So you've got to say give it another one to the IRS because they think I have income that I don't have and they're going to hold my refund or whatever if you don't fix it. So the IRS cannot correct it. So some tax credit return to 2019 levels. So this means that the affected taxpayer will likely receive a significantly smaller refund compared with the previous tax year. So you'll note that with the whole COVID thing, the IRS expanded payments and whatnot. One, to deal with the problem I think originally. And then two, just as political tactics, which probably led to inflation and didn't actually help anything I don't think after a certain point. But I'm not even sure. But in any case, that's what it is. So now they're going to have to pull back on it at some point because they obviously went way over the top on it to some degree for a pretty extended period of time. And that could be painful when you have to pull back some of these credits that they increased. So changes include amounts for the child tax credit, the CTC earned income tax credit, the EITC and child and dependent care credits. So those who got $3,600 per dependent in 2021 for the CTC child tax credit will if eligible get $2,000 for the 2022 tax year for the EITC eligible taxpayers with no children who received roughly $1,500 in 2021 will now get the $500 in 2022. The child and dependent care credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021. Visit credits and deductions for more details. There's a link to that here. No above the line charitable deduction during COVID taxpayers could take up to $600 charitable donation tax deduction on their tax returns. So this whole charitable thing is kind of interesting because you'll recall that the prior administration tried to simplify the tax code. And one of the ways you could do that is to try to say I'm trying to get away from these itemized deductions, which usually impact more well off people and try to have more people have the standard deduction. That would simplify the tax codes you would think and have. But so that what they did is they increased the standard deduction. And then you can imagine what's going to happen. Some people like some of the items on the itemized deductions like charitable deductions and whatnot. So those things, it seems to me kind of leak over to other areas are like, well, what if we can put some of the charitable deduction on above the line or schedule one type of deduction and whatnot. And you see those kind of changes. Now that was a temporary change. A lot of these changes they put under the cover of COVID policy. So the law, the administrators say, hey, there's an emergency, but then they're doing whatever they want to do, which will probably basically like giving out political candy is what they tend to do because under the veil of an emergency, you know, in order to gain political points from my skeptical vantage point is how I see it. But in any case, now that they now that's going to bounce back as well. It's kind of interesting. You can be at you can debate that topic in terms of some of those itemized deductions, you know, should they be more or less valuable and whatnot? They complex the code. But sometimes you might say, well, some of them are good or bad. I still fall on the side of typically simplifying the code is probably better. But in any case, however, in 2022, those who take a standard deduction may not take an above the line deduction for charitable donations. So more people may be eligible for the premium tax credit for tax year 2022 tax payers may still qualify for the temporarily expanded eligibility for the premium tax credit. There's a link to that here. Eligibility rules changed to claim a tax credit for clean vehicles. So review the changes under the Inflation Reduction Act 2022 to qualify for the clean vehicle credit. So there's a link to that here. You can check that out. Avoid refund delays and understand refund timing. Many different factors can affect the timing of a refund after the IRS receives a return. Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills. So you don't want to expect a refund to go out and spend a bunch of money because something could happen, right? The iris might delay the refund because there might be a problem or something like that. And remember, whatever they say, 21 days, that's like an average. They've got to come up with some kind of average there. That means that some people are going to be above and below that average. I'm not sure how in the world they come up with that number, but I do know they have an incentive to try to make it as low as possible to look as good as possible while still trying to explain why they have some returns that take far longer than that and whatnot. So I wouldn't just count on that number, in other words. So some returns may require additional review and may take longer to process if IRS systems detect a possible error. The return is missing information or there is suspected identity theft or fraud. Also, the IRS cannot issue a refund for people claiming the EITC, that's the Earned Income Tax Credit, or Additional Child Tax Credit, that's the ACTC, before mid-February. The law requires IRS to hold the entire refund, not just the portion associated with the EITC or ACTC. Why? Most likely because those are the things that lead to the increase in identity theft because they have that huge refundable portion. So if someone steals your identity files, just a basic return with no income, they might still try to be able to get these credits if it goes through and so clearly the IRS is going to try to stop that and they might need a little bit more time to do so. So last quarterly payment for 2022 is due January 17, 2023. Taxpayers may need to consider estimated or additional tax payments due to non-wage income from unemployment, self-employment, annuity income, or even digital assets. So if you had any other income, a lot of people's employment situations have been changing for the last couple years. So if you picked up some gig work, if you have multiple jobs that you have worked on, then you might want to do a tax estimate to make sure that you try to avoid penalties and interest. And again, the goal is not simply to get a big refund on April 15th or even to get any refund at all. The goal is to avoid penalties and interest. I talk to people and some people are like, well, I like getting money back at time. That's fine if you want to give them money and they give it back to you at tax time. Okay, but you're not really getting anything from that. What you want is peace of mind that your taxes have been paid, that you can afford to pay the taxes, and that you are reducing the penalties and interest. And so to do that, that's why you want to make sure you pay them on time so you can pay them as little as possible. So the tax withholding estimator, there's a link to that here. It's a good tool on irs.gov, can help wage earners determine if there is a need to consider an additional tax payment to avoid unexpected tax bill when they file. So if you haven't used that or done that this year at all, you probably should because I would think just about everybody could do that considering the tax law has been wildly changing, you know, up and down all over the place for the last three years. There's no consistency so you can't really judge the prior tax return in terms of what you owe in the current year, especially with the big changes we just saw above in terms of, you know, the credits and whatnot. So you probably want to do that and check it out. So gather 2022 tax documents. Taxpayers should develop a record keeping system, electronic or paper that keeps in that keeps important information in one place. This includes year-end income documents like Form W2 from employers Form 1099 from banks or other payers Form 1099K from third-party payment networks Form 1099 NEC for non-employee compensation Form 1099 Miscellaneous for miscellaneous income or Form 1099 INT if you were paid interest as well as records documenting all digital asset transactions. So it used to be that you would just put these in a folder or something like this but now it might be that you're getting these digitally because you're you're going green man you're saving the world or because also it's just easier oftentimes but then you got to make sure you have a secure place to be putting them digitally if you're doing that. So ensuring their tax records are complete before filing helps taxpayers avoid errors that lead to processing delays. So if you don't put something on the tax return which you got a 1099 for the IRS doesn't need to like speculate they have the information that's why the 1099s the W2s exist not so you get the information right and so they get the information so that they could they could tell you know it's like for many small business small low-income individuals or moderate income the IRS could basically do the taxes themselves at this point right because they have all the information but but they could you know but there's still supposed to be a self-reporting mechanism so if you so if you try to report something that's like different than the W2 or a 1099 you're probably going to get a letter from it without the iris having to randomly pick you an audit if on the other hand you did something funny that was wrong that's not reported on a 1099 like a deduction a business deduction or schedule a deduction or something like that then the iris doesn't automatically pick that up you might not get an automatic response from them as you probably would before you get a refund and the other kind of scenario but you might still get audited if there's a red flag and whatnot on those kind of things so you want to understand that so when they have all their documents taxpayers are in the best already I just said that sign into online account the irs online account there's a link to that here let's taxpayers securely access their personal tax information including tax return transcripts payment history certain notices prior year adjusted gross income and power of attorney information filers can log in to verify if their name and address are correct so more and more I think the online account for the irs is going to be more and more important going forward and they should be utilizing it better going forward so you might have I mean we're going to be required to use it you would think in a similar fashion it's basically required to file electronically instead of paper filing which was like kind of a big issue for a long time and so I mean it is what it is right so you might want to check that out so they should notify irs if their address has changed they must notify the social security administration there's a link to that here of a legal name change to avoid a delay in processing their tax return so get banked to speed refunds with direct deposit the fastest way to get a tax refund is by filing electronically and choose a direct deposit direct deposit is faster than waiting for paper check in the mail it also avoids the possibility that a refund check could get lost stolen or returned to the irs as undeliverable don't have a bank account learn how to open an account on at an fdic insured bank there's a link to that here or through the national credit union locator tool linked to that here veterans should see the veterans benefits banking program the vbbp there's a link to that for access to financial services at participating banks so clearly the irs wants to make everything electronic to the point that they can including the payment if possible note that if you are not getting a refund maybe you don't really care about the speed that much you might just paper file the thing and say you know whatever we're not doing the electronic banking system although it's still kind of useful to uh to electronically file to make sure that the return was processed I still like to do that but you might say as long as I'm avoiding the penalties and interest I'll just write you a paper check and send it on in the mail with a paper tax return and it'll probably take forever for the iris to process because they're not really up to speed yet on that at this point so anyways prepaid debit cards or mobile apps may allow direct deposit of tax refunds they must have routing and account numbers associated with them that can be entered on a tax return taxpayers can check with the mobile app provider or financial institution to confirm which number to use so we got the bookmark resources you got the taxpayers can download publication 5348 get ready to file or publication 5349 year round tax planning is for everyone everyone for more information to help them get ready to file there's links to that here there's links to all this wonderful information and we provide a link to to this page that has these links in the description