‘Be your own advocate’ by knowing these 4 changes for 2023 taxes, advisor says

It’s never too early to start planning for the upcoming tax season.

As the year-end approaches, it’s a good time to get paperwork organized and make a checklist of tax forms you’ll need before filing, experts say.

“You really need to be your own advocate,” said certified financial planner Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.

More from Personal Finance:
IRS waives $1 billion in penalties. Who qualifies and how much taxpayers may get
3 year-end investment tax tips from top-ranked financial advisors
Here’s what to expect in 2024 if you want to buy a home, according to experts

By creating a record-keeping system, you’ll put yourself in “the best position to file an accurate return and avoid processing or refund delays,” according to the IRS.

As you begin the process, here are some must-know changes to consider for the upcoming season.

When comparing tax year 2022 to 2023, there was a big adjustment to the federal income tax brackets, according to experts.

While the rates didn’t change, there was roughly a 7% increase in the brackets, which expanded the amount of taxable income you can have in each tier. You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

“That was a larger increase than usual,” Kyle Pomerleau, senior fellow and federal tax expert with the American Enterprise Institute, previously told CNBC. “And that is because inflation has been higher than usual.”

Inflation also boosted the standard deduction for 2023, which reduces your taxable income, but makes it harder to claim itemized tax breaks for charitable giving or medical expenses.

For 2023, the standard deduction increased to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850 for 2023, an increase from $12,950.

Enacted via the Tax Cuts and Jobs Act of 2017, the higher standard deduction is slated to sunset in 2026, along with lower tax rates. Some filers may have tax planning opportunities in the meantime, such as accelerating income or making Roth individual retirement account conversions, said CFP Nicholas Gertsema, CEO and wealth advisor at Gertsema Wealth Advisors in St. Joseph, Missouri.

The IRS in November delayed a 2023 reporting change for business payments made via apps such as PayPal or Venmo.

Prior to the change, even a single payment of $600 would have triggered Form 1099-K, which reports business payments to the IRS.

Referring to 2023 as a “transition year,” the IRS said 2023 would have the old limit of more than 200 transactions worth an aggregate above $20,000.

However, business income is still taxable, warned Tommy Lucas, an Orlando, Florida-based CFP and enrolled agent at Moisand Fitzgerald Tamayo. “If you want to follow the law, you [have] still got to report it, even if a third party is not.”

If you purchased a vehicle in 2023 or made energy improvements to your home, you could qualify for tax breaks, according to the IRS.

The clean vehicle tax credit caps the break at $7,500, while eligible eco-friendly home improvements could be worth thousands more.

With more complicated tax breaks, it’s critical to “have your ducks in a row” prior to meeting with a tax preparer, Jastrem said.

Don’t miss these stories from CNBC PRO:

• Official Wall Street outlook: Here’s where strategists see the stock market going in 2024
• Here’s where to invest $50,000 heading into 2024, according to market pros
• Morgan Stanley prefers ‘boring’ non-AI tech stocks for 2024. Here are its top global picks
• Bank of America reveals its 4 top biotech picks for 2024 — and gives one 166% upside
• CD rates are dropping. Here’s where to find the highest payouts