It’s almost a new year, but there’s still something about 2023 that needs to be wrapped up: your taxes.
Tax season typically opens in late January when the IRS officially starts accepting and processing tax filings. You usually have until April 15 to file, unless it’s a holiday or weekend, which gives you more time to submit your taxes.
Professionals, however, urge most people to prepare now and get them done as soon as possible, if for no other reason than to get their refund quicker.
“Refunds were down a little last year due to waning pandemic benefits, but I think it has settled and may be up because of inflation adjustments,” said Mark Steber, chief tax officer at tax preparer Jackson Hewitt.
Last year, the average tax refund by the April deadline was $2,753, down from the prior year’s $3,012, when pandemic-related benefits helped boost refunds, the IRS said.
How does inflation affect my taxes and refund?
The IRS makes annual inflation adjustments to many tax provisions, including tax brackets, standard deductions, 401(k) and IRA contributions. Here are just a few examples of how these tweaks could help you with your taxes this year:
- Income thresholds for 2023 tax brackets were adjusted up by a record 7% because of soaring inflation. So, if your taxable income stayed relatively flat, you could end up in a lower tax bracket with a lower tax rate that goes with it.
Single filers with taxable income of $41,776 to $89,075, for example, were in the 22% federal income tax bracket last year. For 2023, that bracket applies to single filers with taxable income of $44,725 to $95,375.
So, if you have $42,000 of taxable income in 2022 and 2023, you’ll move from the 22% federal tax bracket to the 12% bracket when you file your 2023 tax return.
- Standard deductions also were adjusted up by about 7%, meaning more of your income will escape tax. Nearly 90% of American taxpayers take the standard deduction, the IRS said.
- Increased contribution limits for 401(k) and IRAs allow you to shield more income from taxes. Contributions are made with pretax money and not taxed until withdrawn unless they are added to Roth accounts. Roth accounts are funded with after-tax money and withdrawals are not taxed.
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Why should I file my taxes early?
A refund is usually the biggest incentive to file your taxes early. Three out of 4 taxpayers will likely get a refund, and “for most Americans, it’s the single largest payday of the year,” Steber said.
However, there are other reasons to file early too. They include:
- Locking down your information. Once you file and the IRS has your return, no one can steal your information and try to file a return on your behalf and steal your refund.
- More time to file an accurate return. If you or your tax preparer find a mistake, you have more time to correct it. Filing an accurate return will ensure you’ll get your refund quickly if you’re due one and cut the chances of any IRS questions or audits.
- Time to prepare finances in case you owe money. If you owe money, it’s better to find out sooner than later so you can come up with the money. Even if you file your taxes early, you still have until the April deadline to pay.
When can I get started?
Though you can’t officially submit your taxes to the IRS until it says it’s ready to accept them, you can begin to prepare them as soon as you receive all your 2023 tax information from employers, banks, and other financial institutions. You should start receiving and collecting this in January.
Once you’ve received everything, you can begin preparing your tax forms so they’re ready to go as soon as the IRS says “Go!”
If you use a tax preparer, they can put them in the queue to be automatically filed as soon as the IRS opens tax season, and you can be among the first to file taxes, and hopefully, receive a refund, Steber said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Read More: 2023 tax season is here, but don’t wait to file, Here’s why.