Now that employees have received their 2023 W-2 forms income tax filing season has begun. We spoke to Keri Shepherd of Burke & Walker Income Tax, whose team has just moved into a new building on 3337 Highway 29, just north of Hope. She provided information for taxpayers to consider as they get started on those returns.
For starters, there are not many changes for most taxpayers filing federally. Shepherd said, “as far as tax brackets and tax rates, all of that is really pretty much the same as it has been for the last several years. The tax brackets, the percentages have not changed.”
However, she points out a couple changes that usually happen every year to filers’ advantage. “They have actually increased income limits, which is more beneficial for the taxpayer. They have increased the standard deduction a little bit, which the higher the standard deduction is, the more a person's total income is not taxable,” Shepherd said.
As an example, she said that a single taxpayer under 65 would see a standard deduction of $14,600. This means that person’s first $14,600 of income is not federally taxable. The rise to $14,600 for the 2023 year reflects the cost of living.
On the other hand, Shepherd said, if a taxpayer’s itemized deductions for as medical expenses, real estate, personal property taxes, mortgage interest and charitable donations exceed this standard deduction in total, they can the income that was paid these costs counted as non-taxable. The returns prepared by Burke & Walker are showing higher refunds than for 2022, Shepherd said.
When it comes to Arkansas taxes, the standard deduction for 2023 has been set at $2,200 for the single taxpayer and $4,400 for a joint return. An additional deduction for most has been provided, too. “This is the second year, that there's an inflationary tax credit. It's $150 per taxpayer, or $300 for a joint return. Now that $150 credit per taxpayer does phase out as the income gets higher,” Shepherd said.
In terms of timing for filing returns, unless you are absolutely sure your only tax document will be a W-2, Shepherd advises not rushing to file for at least another week into February. That allows for all the tax documents you are due to be sent to arrive. “We can go back and we can do an amended return. And we do have to do quite a few of those. Most of the time we have to do those because people left off something and they filed early, and they really should have waited,” Shepherd said.
For small business, Shepherd explained, December and January are the time when “we’re getting estimates together for the self-employed businesses.” She recommended that those businesses showing a profit consider becoming an S-corporation, which the IRS website defines as a corporation “that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.” If the corporation meets the requirements to become an S-corporation, “this allows S corporations to avoid double taxation on the corporate income.”
Many of Shepherd’s clients have followed through on this idea. “It is definitely something that we have converted a lot of our LLCs and business owners to. The reason is, is as an S corp, their income tax rate is about half of what it is just as a self-employed individual or business,” she said.
She said the requirements for S corporation status are “not extensive.” They would include filing a different tax form and compiling quarterly reports, which Burke & Walker takes care of. Often, afterward, the client returns gratified to have made this choice. “The only thing that I ever hear the following year,” Shepherd said, “is ‘I wish I would have known sooner,’ because we're talking about cutting taxes from 30 to 15 percent. That's a huge savings. What it costs in a little bit of paperwork, it more than saves.”
As for how taxpayers can make sure their returns are processed as quickly as possible, Shepherd said filing electronically is the best choice: “We try to avoid sending in paper copies of anything that we need processed, because when we send it on a computer it goes basically from our screen to their screen and nobody's having to input information. When we send in something by mail, somebody's got to physically open it, look it over and key it all in.”
For taxpayers considering the use of software to file their returns, Shepherd says she has heard of cases in which taxpayers would fill in their information in a software they believed filed returns for free only to find out when it came time to actually electronically file that they would be charged a fee.: “It's like, well, I've done all the work. I might as well just go ahead and do it. To me, it's misleading. I don't like that. I would rather be up front with somebody and tell them up front, hey, this is what it's going to be.”
At Burke & Walker, the upfront charge for the firm to complete your federal and state return starts at $150. That comes with the firm’s services in the year following in case of audits or other needs. “Included in our fee is once you've paid us for your taxes, we're yours for the year. I don't want to throw lawyers under the bus, but we don't charge per minute or per hour. If they need to call us six times a year, or they need an additional copy of a return and they need it sent to the bank or whatever. That's all included in our price,” Shepherd said.