It’s that time of year again - TAX SZN - and while our expertise tends more towards Festival Season, we’ve got a guy. Miguel Williams of Williams & Associates specializes in tax preparation for live event professionals and small businesses and he offered some insights and tips to help with your filing. If you have specific questions for Miguel or want his help with your taxes, send him a note.
What's new this year? Any changes to filing taxes from last year?
This year’s tax season (2022 tax year) is similar to last year’s with a lot of talk about potential changes, but not many actual changes. However, there were a few that are worth noting:
Unlike 2020 and 2021, there were no new stimulus payments for 2022, so taxpayers should not expect to get an additional payment in their 2023 tax refund.
Some tax credits return to 2019 levels, meaning that taxpayers will likely receive a significantly smaller refund compared with the previous tax year due to amount reductions.
Changes include amounts for the Earned Income Credit (EITC), the Child Tax Credit (CTC) and the Child and Dependent Care Credit will go back to pre-COVID (2019) levels. Examples include,
For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 for the 2022 tax year.
Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 per dependent for the 2022 tax year.
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
The Standard Deduction for 2022 was raised (due to inflation like every other year)
$12,950 for Single/Married Filing Separately (previously $12,550)
$25,900 for Married Filing Jointly/Qualifying Surviving Spouse (previously $25,100)
$19,400 for Head of Household (previously $18,800)
No more Qualifying Widow deduction
One hot topic that was put on the back burner was filing a 1099-K for payments from Third-Party Settlement Organizations with a threshold of $600 instead of the initial $20,000 threshold when it was first introduced (this includes payment apps such as Venmo, Zelle, Ca$hApp, etc.). This means that the third-party settlement organizations would be required to report payments for goods and services to the IRS on the taxpayer’s behalf and would need to be filed on the taxpayer’s individual return. This was postponed due to the IRS deeming 2022 as a transition year so it should be expected for 2023 tax year (2024 Tax Season).
Also, eligibility rules changed to claim a Clean Vehicle Credit. This mainly involves Electric Vehicles.
Some state tax will be deductible on the federal return this year. This varies by state so make sure you check with a Tax Professional.
Finally, taxpayers that don’t itemize and take the standard deduction cannot deduct their charitable contributions this year.
What is the 1099-NEC and what are the implications for gig workers?
1099-NEC is very similar to a 1099-MISC but has become more popular due to the rise in the gig economy. The 1099-NEC is provided to independent contractors (gig workers) from companies that have paid them more than $600 during the calendar year. The 1099 is mainly for the Self Employed (synonymous with Independent Contractor/Gig Worker). The 1099 is used to report the income portion of the gig workers’ Schedule C on their tax return. Usually, anyone receiving these will have business expenses to deduct.
What about the 1099-NEC for employers?
Deadlines are just as important for employers as they are for employees. Employees depend on Employers filing their W2 and 1099-NEC (or MISC) by the January 31st deadline every year and if they do not meet this, employers may be subject to penalties.
The deadline deals a lot with payroll taxes as well. If an employer is not up to date on this, this can make the Jan 31st deadline a nightmare. Payroll taxes should be remitted monthly throughout the year as well as state sales tax. Both only apply to employers with employees (payroll taxes) and sales for goods and services (state sales tax). No worries, some of the payroll taxes are deductible on the employer’s business returns.
Employers should be taking advantage of the Employee Retention Credit (ERC) if they employed and retained employees in 2020/2021 (COVID Years). It is a refundable credit for a certain amount of employees that were retained throughout the pandemic. The employer must meet certain criteria to qualify for this credit as well. But be cautious when applying for this credit - there are lots of scams around it out there.
Also, estimated taxes should have been paid by the January 17th deadline. Quarterly taxes are important for employers and self-employed individuals. This helps lower the risk of a high tax bill come April 18th and it helps avoid penalties if you owe more than $1,000.00 for the tax year.
As a contractor, what expenses can I deduct? My new laptop? My home office? What about my new car?
As an independent contractor, you can deduct the majority of your business-related expenses. This should offset the income from the business whether it is reported on the 1099-NEC or it is income collected throughout the year from other clients/customers. Equipment like laptops can be depreciated. You can write off Home Office expenses as long as 300 sq ft of your place is dedicated for work. New cars can be written off depending on their weight, but you can write off your miles and other car expenses if it is used for work. Car write offs can be tricky. Other items that can be written off are interest paid on any business credit cards, business supplies, advertising, some rent and leases (depending on the industry), travel, meals, and much more. The expenses MUST be business related. A key point here is that you should not try to claim a loss (more expenses than income) every year as this may take away your business status and you will only be able to claim income as a hobby.
I have a full time job and also did gig work on the side, how does that affect my filing?
Every case like this is different. Your full time job should have withheld taxes from your wages throughout the year and remitted them to the IRS on your behalf. If you had a second job where you received a W2, this may still be the case depending on what information was provided on your W4 when you started.
If you are doing gig work, you most likely submitted a W9 and no taxes are being remitted on your behalf. In this case, you are responsible for the taxes on the gig work’s income received. You can also write off expenses that pertain to the gig work to offset this income and lower your taxable income for said gig work (see above).
I’m recently married, should I file jointly with my spouse or continue to file individually? What are the benefits of each?
Filing jointly is always a safe bet as you all have a higher standard deduction by combining incomes and overall credits and deductions for the year. This is also a case by case basis as well depending on the taxpayers’ situation. Filing separately may benefit one spouse more than another; that may make it a bit unbalanced, but may also help with financing in the future.
Anything else I should be thinking about when filing?
As a taxpayer it is important to go into the tax season prepared and not rushing to get things filed. Utilize the time to gather all documents that are tax related to properly file your taxes the first time around. Filing an accurate return can prevent errors, delays, and daunting IRS notices. So if you had any dividends paid to you or even crypto, it is a great idea to take your time and get sound advice from a tax professional. Also, a key note is to set up an IRS Online account to make sure you track all of your tax activity. You will be able to see past filings and be able to see all the forms that were reported to the IRS on your behalf.
What are the tax deadlines this year?
Wednesday, March 15, 2023 – Partnerships, S Corporations must file for the calendar year and furnish Schedule K-1s or K-3 to shareholders.
Tuesday, April 18, 2023 - Individual tax returns or an extension to file and pay tax owed for most taxpayers, Estates and Trusts. Also the 1st installment of 2023 estimated payments are due.
Taxpayers requesting an extension will have until Monday, October 16, 2023, to file.
Individuals – 2023 estimated taxes are due
April 18 (Q1)
June 15 (Q2)
September 15 (Q3)
January 17, 2024 (Q4)
As always, I suggest that you reach out to us or to your tax professional if you need a deeper dive into your tax situation. We are definitely here to help!