Smaller Refunds

For 2023

Original article from Accounting Today:

By now, both the Internal Revenue Service and the media have made many taxpayers aware that they might receive smaller refunds this year than they have become accustomed to. There are a number of reasons for this, according to Stephen Mankowski, tax chair at the National Conference of CPA Practitioners.

“The Child Tax Credit has been reduced back down to $2,000 per child, resulting in higher total tax,” he said. “Moreover, new withholding Form W-4 results in taxpayers withholding less than in prior years. The form was revised in 2019 — while the old form can still be used, taxpayers are gradually shifting to the new form.”

The new form does away with “allowances,” which is meant to reduce the form’s complexity and increase its transparency, according to the IRS. The value of an allowance was tied to the amount of the personal exemption, which can no longer be claimed on the Form 1040.

Besides the reduction of the CTC from $3,000 to $2,000, Mankowski cited a number of tax law issues for preparers to bear in mind this tax season:

  • The gift tax annual exclusion for 2023 increases to $17,000;
  • Mortgage insurance (on Schedule A) is no longer deductible;
  • The $300/$600 deduction for charitable contributions is now only permitted on Schedule A;
  • Preparers should expect more IRS guidance on virtual currency gains and activity;
  • The new Form 1099-k threshold of $600, which was delayed for a year, is now in effect. For transactions in 2023, there is a $600 threshold and no transaction limit. Furthermore, there is no aggregation of transactions (this typically applies to ticket sales); and,
  • Proposed regulations for inherited IRAs include a 50% penalty for failure to withdraw, with a 10-year time to liquidate; and this also applies to Roth IRAs.

Besides those specific legislative changes, Mankowski shared some broader issues from the IRS for the rest of the run up to April 18.

2023-02-23T21:18:49+00:00February 23, 2023|Articles|

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