While tax season requires taxpayers to get all of their documents in order and ready for filing, it’s also important to be aware of tax withholdings for the 2023 tax year.
The Internal Revenue Service (IRS) explained that any number of factors can affect how much taxpayers owe in a given year – changing filing status, changing living situation, having a child, changing jobs, etc. However, to avoid penalties and having to make additional tax payments, it’s important for taxpayers to know just how much they’re withholding this year.
Estimated payments can help taxpayers avoid penalties
Taxpayers have two primary options when it comes to paying taxes: withholding taxes from paychecks, pensions, or government payments like Social Security, or by making estimated tax payments.
For taxpayers who have experienced a major life change within the last year – changing their filing status (single to married or vice versa), having a child, moving, changing jobs – or for those who are self-employed or work in the gig economy, taxes are likely to look different. The IRS encourages taxpayers to look at their current withholdings and think about how to best approach their taxes for the new year.
For those who don’t choose to either withhold more taxes or make estimated tax payments, the result is likely going to be a rather large tax bill when it comes time to file. To avoid this, the IRS encourages taxpayers to consider estimated tax payments or increasing withholdings.
The Tax Withholding Estimator can help taxpayers get a better idea of whether or not they need to up their withholdings or think about incorporating estimated tax payments.
Utilizing the adoption tax credit
When it comes time to file 2022 taxes this year, taxpayers who have adopted children should be mindful of the adoption tax credit. The maximum credit for 2022 is $14,980 per child, and it is valid for U.S. taxpayers regardless of whether or not the adoption was domestic or foreign.
Expenses that can be deducted under the credit include:
Court costs and attorney fees
Traveling expenses (including meals and lodging away from home)
Reasonable and necessary adoption fees
Other expenses related to the principal purpose of the legal adoption of an eligible child
More information on income limits, timing rules, and claiming the credit is available here.