Tax season in full swing with several new changes, considerations for local filers

With one month left until the federal tax filing deadline, it’s officially crunch time for tri-state taxpayers.

The federal personal income tax filing deadline is set for April 15 this year. That deadline is the same for both Wisconsin and Illinois state tax filings, although Iowans have until the end of April to file their state income tax return.

While much about those filings remains the same year-over-year, tri-state area experts attest there are some new changes and considerations for this year’s taxpayers.

In Iowa, for example, this tax season marks the first where the state will not tax retirement income after the passage of a 2022 state law that went into effect with retirement income earned after Jan. 1, 2023.

“That’s any retirement income, whether it be social security, a 401K or an IRA. None of that is taxable in the state of Iowa for anyone over the age of 55,” explained Larry Zettel, a local volunteer with the IRS Volunteer Income Tax Assistance program. “For a lot of retired people, that means they’re going to be paying less in taxes.”

VITA is a no-cost tax service geared toward residents who generally make $64,000 per year or less, residents with disabilities and those who speak limited English. It’s available through HACAP in Dubuque, Delaware and Jackson counties.

Another change for Iowa taxpayers this year is the move to adopt the federal standard deduction for state income taxes instead of having Iowa-specific deductions, said Linda Goldsmith, tax preparer at Affordable Tax Service in Dubuque.

A deduction refers to the amount an individual is able to subtract — or deduct — from their taxable income when filing their personal income taxes.

Standard deductions are flat rates based on filing status, while itemized deductions are the combination of all tax-deductible expenditures made during that tax year. The rule of thumb is to pick whichever is higher, Goldsmith said, to lower your overall tax bill.

The standard deduction in Iowa now matches the federal deduction of $13,850 for single filers and $27,700 for married couples filing jointly. That’s compared to state-specific deductions of $2,210 and $5,450 last year, respectively.

Given the jump, Goldsmith said, fewer Iowa taxpayers need to itemize their deductions since it’s unlikely they’d exceed the flat rate of the new standard deduction.

“We have clients who are used to lugging in all these documents and receipts to add up their itemized deductions, and for a lot of them, that’s just not necessary anymore,” she said. “That’s a big change for some folks.”

The shift has saved time for area taxpayers, Goldsmith added, as well as their tax professionals.

“It saves us at least 30 minutes (per person) to not have to go through all those itemized deductions,” she said. “It doesn’t seem like a lot, but it can seem a lot longer when you have a client sitting across the table waiting.”

Not much has changed this year in the way of individual filings for Wisconsin residents, said Stacey Lull, co-owner of Accounting & Tax Solutions Inc. in Lancaster, Wis., marking a return to relative normalcy after years of pandemic-related disruptions.

She said some homeowners, however, stand to benefit from the expansion of home energy tax credits backed by the Inflation Reduction Act of 2022. Under the federal program, individuals who make energy improvements to their homes in any state in the U.S. are eligible to receive tax credits for a portion of qualifying expenses.

For improvements made in 2023, the credit equals up to 30% of qualifying expenses up to a maximum of $1,200. For improvements made in 2022, the maximum credit was only $500.

“That’s something to think about if you’ve been doing some home improvement projects around efficiency,” Lull said. “Really, anyone who owns their own home could benefit.”

Several new or expanded tax credits also are available for Illinois residents.

Eligible Illinois emergency volunteers can now receive a $500 non-refundable income tax credit, for example, and qualified educators can receive up to a $500 credit for the purchase of classroom materials and supplies.

Also, many tri-state-area residents now can file their federal taxes for free using the IRS Free File program.

Anyone whose adjusted gross income is $79,000 or less can use the guided tax software, which is one of the services the IRS partners with to help residents file federal taxes at no cost. Free fill-in-the-blank forms are available to anyone whose gross income exceeds $79,000.

Similar income-based programs are available at the state level for residents in Iowa, Illinois and Wisconsin.

Whichever means an individual uses to file their taxes, however, area experts are recommending local residents make haste as the federal deadline approaches.

“That deadline is coming up,” Goldsmith warned. “You don’t want to wait to walk into our office until April 15.”