With the federal tax filing deadline swiftly approaching, the Internal Revenue Service (IRS) urges filers to know essential insights for the tax season 2023. As the calendar marked March 1, a significant observation was that the IRS had received approximately 54 million individual returns. This number accounts for less than 40% of the anticipated 146 million returns for the current season. Notably, an uptick in the average refund has been reported, standing at $3,182, which marks a 5% increase compared to the same period in the preceding year. However, as more returns are processed, this average could see adjustments.
Who Has More Time
Exceptions to the April 15 deadline exist. Residents of eight states affected by natural disasters have until June 17 to file their tax returns. An IRS spokesperson, Eric Smith, says those who qualify automatically get the extra time. There is no need to request it.
Three Critical Considerations Before the Deadline
Several Free Tax-Filing Options Available
Taxpayers this season can choose from many free filing options to make the process both accessible and cost-effective. The IRS has particularly highlighted the Direct File pilot as a noteworthy option. Having fully launched on a Tuesday for constituents in 12 states, this program offers a direct avenue for filing through the agency. Additionally, the IRS Free File initiative remains a mainstay. Under this arrangement, individuals with an adjusted gross income of $79,000 or less, a significant increase from $73,000 in 2022, can file at no cost.
Moreover, other avenues such as Volunteer Income Tax Assistance, Tax Counseling for the Elderly, MilTax, and software from private companies ensure that taxpayers are not left wanting for options. These programs underline the IRS's commitment to providing robust support, enabling Americans to navigate tax season easily.
Unclaimed Credits Worth Millions
IRS Commissioner Danny Werfel stresses that nearly one in five eligible taxpayers misses out on seizing the earned income tax credit (EITC). Touted as a critical tax break for low- to moderate-income workers, the EITC presented an average value of $2,541 last season. With millions potentially overlooking this opportunity, the emphasis lies on the considerable financial relief it offers families.
For the tax year 2023, the EITC scales up to a maximum of $7,430 for families with three or more children, a noticeable improvement from the previous cap of $6,935. Meanwhile, eligible individuals aged between 25 and 64 can access up to $600 without a qualifying child. Furthermore, the IRS hints at potential credits for those investing in energy-efficient home improvements or purchasing vehicles, providing additional avenues for tax savings.
Last-Minute Strategies to Lower Tax Bills
Despite the closing window post-December 31, there remain actionable strategies for taxpayers aiming to reduce their tax liabilities or enhance refunds. John Loyd, a certified financial planner and enrolled agent, suggests leveraging pretax contributions to individual retirement accounts. Such contributions not only afford a deduction depending on the filer's workplace plan and income but also cater to a tax break via spousal IRA contributions.
With contribution limits set at $6,500 per account, plus an additional $1,000 for individuals aged 50 and older, taxpayers have until the deadline to make their 2023 contributions. Moreover, contributions might qualify individuals for the saver's credit based on income levels, potentially covering 10%, 20%, or even 50% of the deposited amount.
Another recommendation includes contributions to a health savings account, assuming eligibility through a high-deductible health plan. Health savings accounts' triple tax advantages, upfront deductions, tax-free growth, and tax-free withdrawals for approved healthcare expenses make them valuable as strategic tax-planning tools.
Although April 15 is the federal deadline for most filers, exceptions have been made for residents in parts of eight states affected by natural disasters, granting them an extension until June 17. An IRS spokesperson, Eric Smith, assures that this extension is automatic, eliminating the need for affected taxpayers to request additional time.
