Understanding the Basics of Filing Your 2023 Tax Return

Filing a tax return is a yearly requirement for most people who earn income in the United States. Your tax return is a document that reports how much money you earned during the year and how much tax you should pay based on that income. The Internal Revenue Service (IRS) uses this information to determine whether you owe additional taxes or whether the government owes you a refund.

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For the 2023 tax year, you will file your return in 2024. Most individual tax returns are due on April 15, 2024, though this date can shift slightly depending on weekends and holidays. If you cannot file by this date, you can request an extension that gives you until October 15, 2024 to submit your return.

The tax system in the United States is progressive, meaning people who earn more money generally pay a higher percentage in taxes. In 2023, there were seven tax brackets for individuals, ranging from 10% for the lowest earners to 37% for the highest earners. Your actual tax bracket depends on your total income and your filing status.

You will need to gather several pieces of information before you begin filing. This includes documentation of all income you received, records of deductions you want to claim, and information about any dependents. Most people receive forms from their employers and financial institutions that report this information. The most common form is the W-2, which shows wages you earned from employers.

Practical Takeaway: Start organizing your tax documents now, including W-2s, 1099s, and receipts for deductible expenses. Knowing your filing status and approximate income will help you understand which forms you need and how to proceed with your return.

Gathering Your Income Documents and Records

The foundation of filing your tax return is collecting all documents that show income you received during 2023. Without these documents, you cannot accurately report your earnings to the IRS. Different types of income require different forms, and understanding which forms you should receive is an important first step.

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If you worked for an employer, you will receive a W-2 form by January 31, 2024. This form shows your total wages, the federal income tax your employer withheld from your paychecks, Social Security taxes, and Medicare taxes. You should receive one W-2 from each employer you worked for during 2023. Review your W-2 carefully to make sure the information is accurate, including your name, Social Security number, and earnings amount.

People who are self-employed or received income from sources other than a traditional employer will receive different forms. A 1099-NEC form reports income from self-employment or contract work. A 1099-INT form reports interest income from banks or savings accounts. A 1099-DIV form reports dividends from stocks or mutual funds. A 1099-MISC form reports miscellaneous income. If you received more than $600 in certain types of income, you should receive a corresponding 1099 form.

You may also receive forms for other types of income or tax situations. A 1098-T form reports qualified education expenses. A 1098-H form relates to health insurance coverage. A Schedule K-1 shows your share of income, losses, and deductions from partnerships, S corporations, or trusts. If you received unemployment benefits in 2023, you will receive a 1099-G form showing that income.

Beyond forms provided by employers and institutions, you should maintain personal records of business expenses if you are self-employed, charitable donations, medical expenses, mortgage interest, and property taxes. Keep receipts and documentation for at least three years in case the IRS requests verification of anything on your return.

Practical Takeaway: Create a folder (physical or digital) to collect all income documents as they arrive. Cross-check the amounts reported on your forms against your own records to catch errors before you file. If you notice a discrepancy, contact the issuing institution to request a corrected form.

Determining Your Filing Status and Deductions

Your filing status affects how much tax you owe and which tax credits you may claim. The IRS recognizes five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er). Choosing the correct status is crucial because using the wrong status can result in paying more tax than necessary or missing out on tax reductions.

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Single status applies if you were unmarried on December 31, 2023, and do not qualify for another status. Married Filing Jointly status applies if you were married on December 31, 2023, and you and your spouse both agree to file together. Married Filing Separately is available if you were married but prefer to file individually. Head of Household status applies if you were unmarried, paid more than half the household expenses, and a qualifying person lived with you. Qualifying Widow(er) status applies in the year your spouse died and for the two years following, under certain conditions.

Your filing status determines your standard deduction, which is an amount the government allows you to subtract from your income before calculating your taxes. For 2023, the standard deduction amounts were: Single filers ($13,850), Married Filing Jointly ($27,700), Married Filing Separately ($13,850), Head of Household ($20,800), and Qualifying Widow(er) ($27,700). If you are 65 or older, or blind, you may claim an additional standard deduction amount.

You have two choices when filing: claim the standard deduction or itemize your deductions. Itemizing means listing specific expenses that the tax code allows you to deduct, such as state and local taxes (up to $10,000), mortgage interest, charitable donations, and certain medical expenses. You should itemize only if your total itemizable deductions exceed your standard deduction amount, which would lower your taxable income more than the standard deduction would.

For most taxpayers, the standard deduction is the simpler choice and results in equal or greater tax savings. However, people with significant deductible expenses should calculate both options and choose whichever results in lower taxes. Tax software and tax professionals can help you make this determination.

Practical Takeaway: Identify your correct filing status first, as this determines your standard deduction amount and eligibility for certain tax credits. If you think you might benefit from itemizing, gather receipts for deductible expenses like charitable donations and medical costs, then compare your total to the standard deduction amount for your filing status.

Understanding Tax Credits and Their Impact on Your Refund

Tax credits are different from deductions and can provide significant tax savings. While a deduction reduces the amount of income you pay taxes on, a tax credit reduces the actual amount of tax you owe. Because credits directly reduce your tax liability, they are generally more valuable than deductions of the same amount. Some credits are refundable, meaning if the credit is larger than the tax you owe, you receive the difference as a refund.

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The Earned Income Tax Credit (EITC) is one of the largest refundable credits available. For 2023, working people with low to moderate incomes may claim this credit. The credit amount depends on your income, filing status, and whether you have qualifying children. For example, a single filer without children could claim up to $560, while a filer with three or more qualifying children could claim up to $3,995. This credit can result in substantial refunds for eligible workers.

The Child Tax Credit provides up to $2,000 per qualifying child under age 17. To claim this credit, your dependent must have a valid Social Security number and be your biological child, adopted child, stepchild, sibling, or descendant of one of these relationships. The credit phases out for higher-income taxpayers, meaning it may be reduced or unavailable for those earning above certain thresholds.

The Dependent Care Credit applies if you paid for childcare or dependent care so you could work or look for work. You can claim a credit for a portion of these expenses, up to certain limits. The American Opportunity Tax Credit and Lifetime Learning Credit relate to qualified education expenses and may reduce your tax if you or your dependents attended college or other post-secondary education in 2023.

Additional credits may be available based on your situation. The Saver's Credit applies to low- to moderate-income individuals who made contributions to retirement accounts. The Residential Energy Credits apply