 Income tax 2023-2024. What's new? Get ready and some coffee because we're looking to do some useful hacks for income tax preparation 2023-2020. Hey, hey, I said useful hacks. Get that legacy media reporter hack off the screen for crying out. Listen, this is serious. This isn't some ridiculous modern Marvel remaker. Most of this information can be found in the form 1040 tax year 2023 instructions, which you can find on the IRS website, irs.gov, irs.gov. We're looking at what is new for tax year 2023, one of those being, of course, the due date of the return. So file form 1040 or 1040 SR by April 15th, 2024. So for most people in the country, the filing requirement, not having those strange weird holidays being back to the normal April 15th that everybody basically remembers by default. However, if you live in Maine or Massachusetts, you have until April 17th. You special people 2024 because of the Patriots Day and Emancipation Day holidays. Why don't they give that to everyone? I don't know. I don't know. But that's the way it is. Standard deduction amount increased. So note that the standard deduction is the deduction that basically everybody in essence gets by default, which we would take if it was greater than the itemized deductions. Many items on the tax return need to be increased for cost of living. First, a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But but that's okay, whatever, because our merchandise is better than their stupid stuff. Anyways, like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us will make you thin, fit and healthy or anything. However, it does seem like it worked for her. Just saying. So subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com increases. And that's going to be one of the substantial changes that often happen from year to year. So from a practical standpoint, as tax preparers, we can usually get an idea of the format or structure of the tax return, but then have to basically update our understanding of the dollar amounts due to the fact that there's going to be in the least inflation adjustments generally. Now, also note that inflation has been more of a problem for the last year. So we could have significant adjustments for cost of living adjustments due to inflation circumstances. So for 2023, the standard deduction amount has been increased for all filers. The amounts are single or married filing separately. That's at the $13,850. And then if we then go to married filing jointly, you would think, of course, that would double, right? So we've got now the $13,850. If you have two people filing one return times two, that's going to get you to, wait a second, hold on, let me do that again. $13,850 times two is going to get you to the $27,700. So when you're trying to memorize these numbers, you might start by basically looking at the single and then double it to $27,700. And then of course, the head of household is going to be in between those two, single being basically the worst for the standard deduction, right? And then if you're married, then that's going to be the highest because you have two individuals. It's basically doubled, which should kind of coincide possibly with their capacity at least to double the income, although that's not what happens most of the time due to family structure and whatnot. But then in the middle, you've got the head of household $20,800. So additional child tax credit amount increase. So now we have the additional child tax credit. This is one of the credits that has been fluctuating over the last few years as we've dealt with all the circumstances that we have dealt with, which caused substantial changes to the tax code. And you would think at this point in time, they're trying to basically kind of get back to normal after all of the changes were made with COVID and all those tax structural changes related to it. So the maximum additional child tax credit amount has increased to $1,600 for each qualifying child. So we'll talk about the child tax credit in more detail in the credits section. So new clean vehicle credits, the credit for new qualifying plug in electric drive motor vehicles has changed. This credit is now known as the clean vehicle credit. So good old name change on that one. So that might confuse you a bit, but hopefully you could find that one. The maximum amount of the credit and some of the requirements to claim the credit have changed. The credit is still reported on form 8936 and schedule three line 6F. For more information, you can take a look at form 8936. Now we're going to go into some more detail about credits in a future section. We're just looking at the changes at this point in time. Then we have the previously owned cleaned vehicle credit. This credit is available to previously owned clean clean vehicles acquired and placed in service after 2022. For more information, you can see form 8936. We've got new lines on schedule three. So you will recall that the 1040, you may recall, a few years ago they tried to simplify the 1040 so that we didn't have like multiple 1040s, like a 1040A, 1040 simple and so on. And then we have the schedules one, two and three so that more complex returns basically have these schedules now. So now we're looking at new lines on schedule three. So this year's schedule three has new lines. Line five has been separated into lines 5A and 5B so that the residual clean energy credit and the energy efficient home improvement credit reported on form 5695 each have their own line. So not a big deal if you're using tax software generally because basically you'll have a little bit different terms of the lines, but the software will probably help you from a practical standpoint to still populate those forms pretty basically. New line 6M was added to report the credit for previously owned clean vehicle from form 8936. And then we have line 13C will be used to report the elective payment election amount from form a 3800. All right, credits for qualified sick and family leave wages. So the credits for qualified sick and family leave wages paid in 2023 for leave taken before April 1st, 2021 and for leave taken after March 31st, 2021 and before October 1st, 2021 are now reported on schedule three line 13Z. So you can see schedule H form 1040 for more information. So this will be obviously only applicable if you have those credits for sick for credits for qualified sick and family leave wages. This is another kind of one of those changes that took place with or in conjunction or with regard to the whole circumstances for the coronavirus in response to it. So alternative motor vehicle credits, the alternative motor vehicle credit has expired and then we have the self employed health insurance deduction. So if you can take the self employed health insurance deduction on schedule one line 17 and you can't use the self employed health insurance deduction worksheet and these instructions you will now use form 7206 instead of publication 535 to figure your deduction. So self employment, self employed health insurance deduction often could be tied to someone who has self employment often reported on a schedule C. So this is going to be something of course, which will increase the complexity of a return. If they're if they have a schedule C, you have to consider these types of things along with it. So just to recall and understand as a tax preparer, you want to think about where your focus is going to be. Do you want to focus on clients that have self employment? If they do, you have some significant other challenges that you need to address or possibly work with others to help address, which could include just simply bookkeeping to get the financials that you need to get the income statement to fill out the schedule C and then all of the advice type of things that could be in play with the schedule C as well. And then other kind of deductions related to it, such as possibly health insurance. So we'll get into the schedule C sole proprietor at a future point in time. So we got the qualified charitable distribution one time election beginning in 2023. You can elect to make a one time distribution above the $50,000 from an from an individual retirement account to charities through a charitable remainder annuity trust, a charitable remainder, you need trust or a charitable gift annuity, each of which is funded only by qualified charitable distributions. So that's going to be somewhat of a specialized area where you're trying to basically maximize your charitable contributions and your charitable contributions are generally deductible on the schedule A. So if you're thinking about how this would affect people, you're typically thinking about higher income individuals, most likely who own a home because those are the ones most likely to be having a schedule A or itemized deductions as opposed to taking the standard deduction who then want to basically give to charity and possibly have the capacity to give to charity from a retirement plan, right? Because now you've got money in the retirement plan. Some of the problems with the retirement plan is that when you pull the money out of the retirement plan, then you could be subject to tax at the time that you that you pull it out of the retirement plan. So those are some of the issues that come up in that particular situation when you're talking about people that are in the age of retirement, possibly having distributions that they need to pull out of the retirement plan and then aligning that to the capacity or ability possibly to put the money into a charitable contribution and see if you can get tax benefits from that situation. So for more information, Publication 590B, increase in required minimum distribution age. So if you reach age 72 in 2023, the required beginning date for your first required minimum distribution is April 1st, 2025. You can see Publication 590B for more information. So note when you're thinking about the classifications or who you're doing taxes for, when you're talking about people that are younger people that are in their working years, then it's likely that they're going to have forms such as the W-2 form, for example, or have their businesses doing a schedule C and so on and so forth. When you're talking about people that are in the retirement stage, then you might not have as many W-2s. They're going to be living off of things like the social security and distributions from their retirement plans. Most of the retirement plans such as 401k plans, IRAs, for example, are structured so that you kind of get the benefit when you put the money into the plan. We'll talk more about them in future presentations, but then when you pull the money out, then it could be a taxable event when you pull the money out. The idea of that being that the IRS is going to try to incentivize you to put the money in when you have the money and then hit you when you take the money out generally in retirement, which actually makes retirement a bit more complex because then you have to plan the tax implications of taking the money out, which are subject to tax and possibly penalties that you have to deal with. And you have the age at which the IRS is saying, I want to force you to take the money out at a certain point in time because you might be in retirement age and say, I don't need to pull the money out. I have enough money right now. And if I pull the money out, it's going to subject me to taxes. So I'd rather just leave it in there, wait till I die or something and then try to inherit it or if that would be better for give it to someone in the form of an inheritance, if that would be better for taxes. And the IRS is saying, no, we've given you the benefit long enough. We want to force you to pull it out, triggering the income tax event at that point in time. So again, so if you reach the age of 72 in 2023, the required beginning date for your first required minimum distribution is April 1, 2023. And you can see publication 590B. So insurance premiums for retired public safety officers. So this is going to be for a specific, you know, group of people when you're doing your taxation. So eligible retired public safety officers can exclude from income up to 3000 of distributions from their eligible retirement plan that is paid directly to them and is used to pay for health insurance premiums. For more information, you can see insurance premiums for retired public safety officers. Now obviously anytime we have the capacity, if you look at this line item, we're going to think about our income tax formula, which and say which line is affected the income line. What's the question related to it? Do I have to include it in income or not? If I have to include it in income, that's bad for taxes, because it'll increase my taxable income increase in my taxes. They're saying you might be able to exclude it from income, obviously excluding it from income would be good and could ripple down to of course, a lower taxable income and lower taxes. So exceptions to the 10% additional tax for early distributions, the exception to the 10% additional tax for early distributions include the following, distributions from a retirement plan in connection with federally declared disasters. So in other words, when the government's trying to incentivize us to put money away for retirement, what do they do? They say if you put money under the umbrella of a retirement plan, which could be in the form of a 401k plan through work, a 403B plan, if you're a public employee or something or an IRA individual retirement account, for example, then we're going to give you a deduction or allow you not to include that income in an income at the point in time of contribution, given you a tax benefit at that point. But when you pull the money out, we're going to tax you not only that, but we're also going to say that your money is now under the umbrella of these retirement accounts. And you've basically said you're not going to pull it out till retirement. Well, if you pull it out early, the government wants to hit you with a penalty. So remember, you would never do this if you didn't get the tax benefit, right? Why would you put your own money into an account where you can't get to it without getting hit with a penalty? Because they gave you a significant tax benefit. So just realize that the government isn't coming up with a new investment plan for you. That's not what the 401k is or an IRA is that you're investing in the same things you always would, meaning you're investing in stocks and bonds generally, most likely. But it's under the umbrella that's just restricting your ability to get to it. And you did that because you got a tax benefit when you put the money in. So what happens if you take the money out? They hit you with a penalty and you have to pay taxes on it unless you're in retirement age, in which case, that's when you can take the money out. The IRS will force you to take your money out at some point in retirement age. Or you have some kind of exception. So these are the exceptions to not get hit with a penalty, but it's important to note that even if you didn't get hit with a penalty, you will likely still have to include it in income, which means it could still have a significant tax implication. It's just not a tax implication of penalties, just normal taxes. Distributions from a retirement plan in connection with a federally declared disaster. So if there was a federally declared disaster, it's likely that someone's going to be saying, wow, I need to rebuild my house. I need to do whatever I need to do at this point in time. I have money, but it's under the umbrella of a 401k plan or an IRA and I can't take it out without getting hit with a penalty and paying taxes on it. Possibly you can have an exemption in that case, right? Is the general idea. Okay, so distributions from a retirement plan made to someone who is terminally ill and then distributions to certain firefighters who meet the age or years of service required. So you can see form 5329 and publication at 590B for more information. So this question will sometimes come up if you do tax preparation. People are going to say, hey, look, I need the money. I need the money now. I have it. But should I pull it out of a retirement plan? Well, generally no, if you can afford it. If you cannot, because you're going to have to pay taxes on it and you're going to have a penalty, but maybe you can qualify for an exception in certain instances is the general idea. So direct file. So the IRS is taking steps to implement a direct file pilot during 2024 filing season. The pilot will give an eligible tax payer an option to prepare and electronically file their 2023 federal tax returns directly with the IRS for free. So we'll see how that goes. That's going to be interesting. The direct file pilot will be offered to eligible taxpayers in participating states who have relatively simple tax returns reporting only certain types of income and claiming limited credits and deductions CIRS.gov direct file for pilot information and updates. So you would think that it would be a fairly basic tax return to do that because usually the tax software even for basic returns is fairly complex to deal with. Even for low income returns, because you have to deal with things such as refundable credits like an earned income credit and a child tax credit, for example. And usually the proprietary software is better at doing those kind of calculations and whatnot. I would think that a government free tool, but maybe they'll surprise us and do something well. So we will continue to track that as time passes.