5 Tax Changes Solopreneurs Need to Know in 2023

Every year, the IRS makes adjustments and changes to tax rules and filing processes that can affect solopreneurs. Here’s our list of the big-picture updates that apply to the tax year 2022 you need to know about in order to accurately file your taxes in April 2023.

1. Tax Bracket Updates

The amount that you’re taxed each year depends on what tax bracket you fall into. While the tax rates haven’t changed, the brackets widened for the 2022 filing year, so this change will primarily affect you if you fell on the cusp of two tax brackets when you filed your 2021 taxes.

Curious about your tax bracket and what you’ll owe this year? Get your personalized estimate from our free tax calculator designed for the self-employed.

Your filing status is also relevant here, as the brackets apply differently to each category. These are the filing statuses and their definitions:

• Single: Anyone who is not married, divorced, a registered domestic partner, or legally separated according to state law as of Dec. 31 of the filing year.
• Married filing jointly: Married spouses can report their respective incomes, exemptions, and deductions on a single tax return.
• Married filing separately: If you’re married, you can choose to file separately if you wish. Whether married spouses file jointly or separately depends on their specific assets and which option provides a bigger tax break.
• Head of household: A head of household is any single/unmarried taxpayer who pays 50% or more in support of a (qualifying) family member, for at least half of the year.

View the 2022 federal income tax brackets (for taxes due in April 2023)

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2. Pandemic Tax Credits Expire

The Child Tax Credit was expanded during the pandemic, up to $3,600 for children under 5 and $3,000 for kids ages 6-17. Families could claim half of this amount in monthly installments over the second half of the year. However, this expansion has been reversed for the 2022 tax year back to the regular credit of $2000 per child.

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3. Increase to the Standard Deduction

In response to inflation, the standard deduction amounts are going up. The standard deduction is a pre-determined amount that any person may use to reduce their taxable income. This is an alternative to itemized deductions, so you should keep it in mind if your itemized deductions end up being less than the standard amount. For 2022, single filers can claim $12,950, up from $12,550 for 2021. Heads of household can deduct $19,400, up from $18,800 and married filers $25,900 up from $25,100. It’s not much, but every little bit counts when it comes to keeping money in your own pocket.

This is NOT the same thing as your itemized business expenses! Expenses reduce your taxable income separately, and you can typically take the standard deduction on top of that. It’s also not the same as the Qualified Business Income credit, which is available regardless of whether you’re itemizing your deductions or taking the standard. Learn more about the Qualified Business Income credit.

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4. Increase to Mileage Deductions

Gas prices were another hot news topic over the last year. Because of those wildly rising prices, mileage deductions have increased. Mileage deductions are what the IRS allows you to deduct per mile as a business expense. If you drive a lot for work (such as to the post office to drop off packages, or to the store for supplies) then this is something that you should pay attention to.

From January 1 to June 30, 2022 the standard business mileage deduction was 58.5 cents per mile, up from 56 cents per mile in 2021. This went up again to 62.5 cents per mile for July 1 to December 31.‍

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5. Increase to SEP-IRA limits

If you haven’t heard us sing the praises of the SEP-IRA yet, it’s a special retirement account for self-employed people that helps you put away money for retirement and reduces your taxable income for the year. You get to keep more of your money for your future self instead of giving it to the IRS.

The amount you can save tends to go up a bit every year, so pay attention to those maximums!

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Now, go find out how much a SEP-IRA could save you on taxes this year with our SEP-IRA calculator — it’s not too late to contribute and take advantage!

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Looking Ahead

There are a few changes on the horizon for 2023 taxes (which you'll file in April 2024) that you're going to want to pay attention to tracking right now.

Meal Deductions: For the tax years 2021 and 2022, 100% of the cost of business meals was tax deductible. So when you file this spring (2023) for last year (2022) you can still deduct 100% of those meal costs. But that pandemic exception has expired, so for those meals you’re tracking now in 2023 for filing next spring (2024) only 50% will be deductible.

The 1099-K Reporting Threshold: One change that was supposed to happen for this filing year but has now been delayed until next year is the 1099-K reporting threshold. Currently, only income exceeding $20,000 and 200 transactions needed to be reported on 1099-K’s for tax purposes.  But now, that’s lowering to $600 total for goods and services through third-party payment platforms like Stripe, Venmo, CashApp, Etsy, eBay, and PayPal.

Keep in mind that you’ve always been required to pay taxes on those earnings—the government just wasn’t cracking down on tracking it. So, if you’ve been paying taxes on all of your income, no matter how small, then this change won’t mean anything different for you. If you’ve been letting smaller transactions slide, however, now is the time to start paying attention since the income you’re earning now will fall subject to this rule change on next year’s taxes. If you hire contractors, we recommend you go ahead and issue them a 1099 for any amount over $600 for 2022, even though the IRS is officially calling 2022 a “transition year” where it’s not required— and definitely make sure you’re tracking what you pay those folks now in 2023 so you have the easy ability to issue that 1099 when it’s officially required in early 2024.

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General tax prep suggestions for freelancers and solopreneurs

Now that you’re aware of the changes you need to know for this year, we want to remind you of some of our best practices for tax record keeping.

Keep track of all your income. Every penny you earn should be documented somewhere. Preferably, you’ll keep this separate from your personal spending in a dedicated bank account. Then, you can connect that business account to Ruby Money and easily see all your earned income in one place, along with the taxes you’ll owe.

Keep an eye out for the release of Ruby Money’s expense tracking feature, coming soon.

Likewise, keep track of your expenses. Any money you spend on your business can help reduce your taxable income and keep more money in your pocket, away from the IRS. Make sure all business purchases are made using a separate checking or credit card so you have a record when tax time comes. With a simple spreadsheet you can accurately track all of your business expenditures throughout the year and categorize them for common deductions.

Download our list of common deductions to keep on your desktop.

Hang on to your receipts. While you might not need them, trust us when we say that it’s a lot better to have receipts you don’t end up needing than to NOT have receipts when the IRS comes knocking. Any expense that you plan to claim as a deduction needs documentation to back it up, whether that’s a PDF or a paper copy.

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Say hello to profits and goodbye to tax stress with Ruby Money

No matter whether this is your first year filing taxes on your freelance income or you’re an experienced solopreneur, taxes can overwhelm even the savviest small business owner. Ruby Money is here to support solopreneurs like you with simple quarterly tax payments and tips for retirement savings that help to reduce your tax burden every year.