It’s the beginning of a new year, and you’re ready to tackle this year’s goals–but before you can officially move forward, you have to close out last year’s financials with tax day 2023.
How fun…
Doing your taxes is one of the more tedious adulting responsibilities you take on when you get your first job. And it’s an especially undesirable task when there are a million other things we would rather be doing—stuff for your future rather than your past.
But you gotta do it.
This article will distill everything you need to get done before tax day 2023, so filing last year’s tax return will be a breeze. This guide has what you need, from how taxes are calculated to how to speed up your tax refund.
Let’s talk taxes.
When is tax day 2023?
The tax filing deadline for your 2022 individual income tax return is April 18, 2023. However, you are welcome to file well in advance of the deadline.
By April 18, you must have both filed your tax return and paid your taxes due for the 2022 tax year(unless you opt for a tax extension-more on this later).
Note: Tax day is typically on April 15th, but as April 15, 2023 is a Saturday, and the following Monday, April 17th, is emancipation day, tax day was delayed three days.
Other important dates
While April 18th is the key date to keep in the back of your mind, you’ll want to know the following:
January 31, 2023
Employers must mail out W-2 Forms by January 31, 2023. Remember that this does not mean you will have them in hand by this date, just that they must be on the way.
Various other tax forms you need to complete your return must also be sent out by this date, summarizing income earned outside of your job, including interest, dividends, freelance payments, etc. (look for IRS form 1099, 1099-NEC, 1099-MISC, and 1099-K)
Tip: If you don’t receive an income tax form on time, first call your employer. If that doesn’t work, call the Internal Revenue Service (IRS) at 1-800-829-1040.
October 16, 2023
If you opted for an extension, your tax return must be filed by October 16, 2023. There are no further extensions beyond this date.
State tax deadlines
Most states follow the same timeline, but it’s worth checking your state department of revenue as some states do have different requirements than the federal government.
For example, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t charge income tax and thus don’t require you to file an income tax return.
U.S. Income Tax 101
Before we jump into nitty gritty tax talk, let’s do some financial literacy groundwork.
What is income tax?
Income taxes are fees paid to the government based on the income received by an individual from working for someone else, the provision of services, or sales of products.
Your employer will automatically deduct income taxes from your paycheck and submit them to the government on your behalf. And if you’re self-employed, you will pay the government a portion of your income directly.
Income tax may be charged at the federal, state, and local levels, depending on where you live.
Why do we pay multiple levels of government?
Just like a manager’s responsibilities differ from those of an intern, the federal government’s responsibilities differ from those of city governments.
For example, taxes paid to the federal government fund the nation’s defense network, healthcare, and financial agencies like the Securities and Exchange Commission.
Meanwhile, state taxes help pay for infrastructures like bridges, roads, rails, and state colleges. And local (or city) taxes cover things like the fire department, police, K-12 education, and public parks.
Note: Some states and cities do not charge income tax. Instead, they raise funding through property and sales tax.
How Income Tax Is Determined
Now that we understand income taxes conceptually, we can explore how to determine how much income tax you must pay by tax day 2023.
To do so, we will look at the main components of the calculation.
- Adjusted Gross Income (AGI)
- Tax deductions
- Tax rates
- Tax credits
AGI
Adjusted Gross Income determines eligibility for certain deductions and credits and, ultimately, your taxable income. AGI will never be more than your total earned income for the year.
AGI is a simple calculation of total earned income less exempted expenses
Commonly included in total earned income are the following (see page 23 of the instructions for Form 1040 for a complete list):
- Salaries
- Wages
- capital gains
- Dividends
- Business income
- Pensions
- Interest
- Tips
- Employer-provided adoption benefits
- Retirement distributions
Reducing total earned income is certain expenses, such as:
- Business expenses
- Student loan interest payments
- Alimony
- Educator expenses
- Health savings account deductions
- Self-employment expenses such as health insurance
AGI is important not only because it is the starting point for determining how much you owe to the government but also because it impacts whether or not you are eligible for deductions and credits that will further reduce your tax liability.
Tax deductions
Tax deductions are subtracted from your adjusted gross income to determine your taxable income.
There are two types of deductions: Standard and Itemized
But you can only use one. So it’s essential to understand the ins and outs of each so you can make the best choice for you.
Standard deductions are pretty straightforward; you just deduct a dollar amount predetermined by the IRS to your AGI. No adjustments may be made to the standard deduction for your individual circumstances.
You do not qualify for the standard deduction if you:
- Are married but filing separately from your spouse, who chooses to itemize their deductions on their separate tax return
- Are a nonresident or dual-status alien during the year
- Are filing a return that accounts for less than 12 months of income
- Are filing as a trust, common trust fund, partnership, or an estate
For 2022, the standard deduction is:
Itemized deductions are more work but could be higher than the standard deduction. The expenses you include in your itemized deductions are relatively extensive. Still, the most common are:
- State and local income taxes
- Property or sales taxes up to $10k
- Medical and dental expenses over 7.5% of your AGI
- Gambling losses
- Mortgage interest on the first $750k of debt
- Charitable donations up to 60% of your AGI
Ultimately, you’ll want to choose the option that results in the highest deduction.
Tax rates
Tax rates are the percentage applied to taxable income (Adjust Gross Income less Deductions) to determine taxes due. Tax rates vary according to the level of income earned, also known as your tax bracket.
After you calculate your taxable income, the next step is to determine your tax bracket to determine your tax rate.
In the United States, there are seven tax brackets for individual taxpayers ranging from 10-37%, as shown in the table below.
As you can tell from the above, calculating your tax rate is more complex than picking your income from the table and applying the associated rate to your taxable income. Instead, it’s a progressive calculation, where you apply a progressively steeper rate to specific income increments.
For example, suppose you have a taxable income of $100,000 and are filing single. In that case, you will determine your tax rate as follows:
| Bracket | Rate | Incremental Taxable Income | Tax Due |
|---|---|---|---|
| 0-10,275 | 10% | 10,275 | 1,028 |
| 10,276-41,775 | 12% | 31,500 | 3,780 |
| 41,776-89,075 | 22% | 47,300 | 10,406 |
| 89,076-170,050 | 24% | 10,925 | 2,622 |
| 100,000 | 17,836 |
In this case, you owe $17,836 in taxes on $100,000 of taxable income, so your tax rate is 17.84%.
Tax credits
Tax credits are a reduction to the amount of tax you owe. These are not to be confused with tax deductions, which reduce taxable income.
There are three types of tax credits:
- Nonrefundable credits reduce the amount of taxes you owe but cannot reduce your tax liability to zero. In other words, you can’t get a refund from nonrefundable credits.
- Refundable credits reduce the taxes you owe up to and past your total tax liability. The more these credits you can apply, the more likely you will receive the coveted tax refund.
- Partially refundable credits also reduce the amount of taxes you owe up to and past your total tax liability, but with the caveat that your refund is capped.
The most commonly applicable tax credits include:
- Child tax credit: $2,000 per dependent under 17, for income under $400k/$200k.
- Child and Dependent Care Credit: 20–35% of up to $3,000 ($6,000 for two or more dependents) for the cost of care of childcare, such as daycare.
- Earned Income Tax Credit: $560 to $6,935 for those earning less than $59,000
- Adoption: Up to $14,890 per child
- Residential energy tax credit: 30% of the cost of solar energy systems, such as solar panels and water heaters
- Electric vehicle credit: Up to $7,500 for a new plug-in-electric vehicle
Note: Your income may impact your eligibility for certain credits. Typically, the higher your income, the fewer credits you are eligible for. Visit the IRS website for more information on every credit available to you.
How to file your income tax return
Now that you have your tax calculation done and dusted, it’s time to file your tax return before tax day 2023.
Where to file your tax return
There are two ways to file your tax return: by mail or online.
Tip: If you have an AGI of less than $73,00 or are an active duty military member, you may qualify for free tax preparation assistance under the IRS’s Guided Tax Preparation program.
If you submit your tax return via mail, you can get your Free File Fillable Forms from the IRS’s website. Start with Form 1040. Instructions will be included for each form you use.
Once you’ve filled out the return, visit the IRS’s Where to File website to find the correct address to send your federal tax return, as it varies by state.
Further, if you are filing your return close to tax day 2023, you may want to use a Private Delivery Service (PDS) to help ensure your return is received and processed on time.
Software
Consider using online software to file your return electronically for faster and more secure filing.
By taking this route, you help eliminate the risk that your return may get lost in the mail or arrive late. Plus, you’ll get peace of mind because you’ll receive immediate confirmation that the IRS has received and is processing your return.
Popular online tax software includes:
Request an extension
Not ready to file yet?
Don’t rush around like a chicken with its head cut off and file an improperly filled-out return. This will only create more work for you down the road.
Instead, file an extension (Form 4868), which will move your due date back to October 18.
Don’t worry. There’s no penalty for extending, and you wouldn’t be alone. In 2022, a reported 19 million people filed for an extension.
Tip: Keep in mind that extending your filing date does not mean you don’t have to pay your taxes by April 16. So you’ll need to estimate how much you owe and make a payment anyways.
Establish a payment plan
If you cannot pay your income taxes, in full, by April 18, 2023, don’t just let it go and hope no one notices.
Apply for a payment plan with the IRS.
However, you will be charged interest on outstanding amounts due, so you’ll ultimately pay more than you originally owed.
What happens if you file or pay late?
If you file your return late and have a tax due that you have yet to pay, you may be charged interest and penalties as follows:
- Failure to File Penalty: 5% of the unpaid tax for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes. If your return is over 60 days late, the minimum Failure to File Penalty is $435 or 100% of the tax required to be shown on the return, whichever is less.
- Failure to Pay Penalty: 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes.
Note: If you fail to pay your taxes, as well as penalties and related interest, the IRS may begin garnishing your wages (i.e., automatically taking what you owe out of your paychecks or may even freeze your bank account).
Tax refunds
Finally, everyone’s favorite part! Tax refunds.
If you are owed a refund, you can typically expect to receive it within 2-3 weeks of filing your return. However, this may take longer if you file closer to tax day, as most others are filing at this time, putting constraints on the IRS.
Your refund may also be delayed if your return is missing information or is selected for an audit.
Track the status of your refund here.
Tip: To speed up your refund process, file your return electronically and choose direct deposit.
ALERT: Keep an eye out for scams
The IRS will always reach out to you via mail – not email, phone calls, text messages, or social media. If you receive a message from the “IRS” from one of these channels, block the sender and report the message to phishing@irs.gov.
Further, the longer you wait to file, the more susceptible to fraud you may be. If they get ahold of your social security number before you file, they could file and claim a refund. So get your return out the door as soon as you can.
Tax day 2023: get ahead of it
You want to embrace everything ahead of you in 2023. So do yourself a favor and file your taxes sooner than later. And make the process even easier by using online software that does the hard work for you–and speeds up your refund!
Download your FREE financial checklist today to gather everything you’ll need to file your return.