From increased credits to bonus depreciations, here’s what you need to know about filing 2023 taxes

Should you wait to file your taxes this year? Can you write off that new copy machine? Will savings accounts save your accounts?

Filing taxes can be confusing enough with all the changes that occur every year. The Internal Revenue Service anticipates 128.7 million individual tax returns to be filed this year by the April 15 deadline, and this year’s changes could impact each return differently.

Idaho Business Review met with Elliott Tracy, director of the Tax Division at KDP Certified Public Accountants, LLP, to find out what to expect when you’re expecting a return or to owe.

What changes should people know about federal taxes this year?

Elliott Tracy: Federal didn’t have a ton of changes this year, but there are a few changes that are pretty important for taxpayers to know.

There’s one that’s currently happening [in legislation] right now that would have an impact on a significant number of taxpayers. We’re telling a lot of taxpayers that they should really wait to file their personal returns for this year until it has passed. Right now, there’s a bill that’s been introduced. It went through Congress, it is currently with the Senate. They have done nothing with it since. Hopefully, there’s going to be some movement on that soon.

The biggest piece of that that everybody is hearing is it’s kind of an enhanced child tax credit. It hasn’t been voted on. There’s a few more steps that would need to happen before it became actual law. But if it was passed in its current form, it would take the normal child tax credit ― about $2,000 per child under the age of 17 ― it would increase that number to $3,600 per child, a $1,600 increase, so pretty significant for a lot of taxpayers.

If you’re a single filer, you would be eligible for that increase if your adjusted gross income is under $200,000. If you were married, filing joint, that number is $400,000.

The second one, not necessarily a big change, but something that is now forever changing with some tax laws we’ve had recently, is standard deductions and tax brackets all get adjusted with inflation, and that’s something that wasn’t always there. What that means for taxpayers is that if they have, let’s say, either similar or exactly the same amount of income that they had in ’23 as they had in ’22, they’re going to see a lower tax at the end of the day because those lower brackets are basically extending, and they’re paying taxes at lower tax rates on more of their dollars then on the top end.

Another item that gets adjusted with inflation is the standard deduction, so if taxpayers don’t itemize, they don’t either have enough mortgage interest or taxes or charitable contributions, any of those things that contribute to itemized deductions. The standard deduction is up for married filing joint. It’s $27,700 for this year, and individuals is $13,850, which is up from last year. And if you’re over the age of 65, there’s even a little extra on top of that on the standard deduction.

A couple of other things for federal: Energy-efficient home improvements are “back.” There are some credits for any improvements made to your home. Those are specifically qualifying. So, energy-efficient windows, doors, insulation, things of that sort. There is a credit of roughly $1,200 per taxpayer per year. There’s an additional credit if you did a heat pump or a geothermal type of heat pump in your home. There are higher credits for those amounts. Also, within that, there’s a 30% credit on the cost of installing solar panels on your home.

The last big item for federal is the $7,500 electric vehicle credit. There are very specific stipulations on this. It needs to be assembled in the U.S. and a few other items. There are also income thresholds. If your income is too high ― I believe that amounts to around $325,000 ― it will phase you out, even if you purchased an eligible electric vehicle.

What’s new in Idaho taxes people should know about?

The biggest one is there is now a flat tax rate for all individuals at 5.8% once they get over a certain level of income, either as an individual or married filing joint. They basically simplified things and said 5.8% across the board.

The dependent care tax deduction has increased to $12,000 for Idaho, so this is a subtraction from your Idaho income. That is a big increase over the last year.

The grocery credit was increased from $100 to $120. It’s even more if you’re over the age of 65.

One of the big ones, Idaho conformed to the IRS as of Jan. 1, 2023. Really, this is more important for business owners than it is for an individual taxpayer. If you have a small business and you buy equipment, you are eligible for bonus depreciation. Now, Idaho business owners won’t have an adjustment for a difference in depreciation at the federal level versus at the Idaho level.

What are some reminders for Idaho taxpayers?

You can deduct up to $6,000 for a single or $12,000 if you file a joint return per year in contributions to an Idaho college saving program. That’s a subtraction from income, it’s not a tax credit. It just reduces income, which then, obviously, effectively reduces your taxes at the rate you pay tax at, which is 5.8%.

You can contribute up to $10,000 ― $20,000 for married filing joint ― to an Idaho medical savings account. What’s important about these, is these are usually done at either a credit union or a bank or what they refer to as savings institutions, but it needs to be titled a medical savings account at that institution to be eligible for this deduction. That is for medical expenses and other qualifying medical expenses.

Idaho residents can also donate case, and it’s important they mentioned case because it’s cash only in this case, to a qualified educational entity. There’s a list of those on the Idaho website, but you can receive up to a $500 credit or $1,000 credit on a joint return, and that credits the smaller of 50% of what you donate up to that amount or what tax you pay.

The last item is donating cash or goods. That’s an important one because you can donate household items, clothing, other things to an Idaho youth and rehabilitation facility. That credit is up to $100 and $200 for a joint return. It’s a 50% credit of the amount that’s donated or, in the case of goods, it’s the value that is donated.

What’s on the horizon for taxes?

The other partners and I were talking about this; 2026 will really be the interesting year. There’s a lot of things that will change. The Tax Cut and Jobs act that passed in 2018 [which changed deductions, depreciation, expensing, tax credits and other tax items that affect businesses], a lot of those are sunsetting in 2026, so that will be the very interesting tax year.

I know that’s on the horizon, but business owners should be very aware of those changes in 2026. If nothing changes and it just reverts back to the way it was prior to 2018, you’re looking at the loss of the qualified business income deduction, which was a 20% deduction for business owners. … That deduction is potentially going away here in the near future, and the top tax bracket for individuals will jump back up to 39.6%, so it could be as much as an 8% increase on taxpayers down the road.