Your 2023 North Dakota Income Tax Guide: Tax Return Filing, Itemized Deductions, and Business Write-Offs

Filing your 2023 North Dakota income tax return is essential for individuals and small business owners. Whether you earned wages, operated as a sole proprietor, or received partnership income, your tax filing process for the 2023 tax year will rely heavily on information reported in your federal return. The state’s system complements federal tax requirements, allowing adjustments, deductions, and credits based on your North Dakota-specific financial activity.

Anyone who was a resident, part-year resident, or earned income within North Dakota may be required to file. This includes employees, freelancers, and married couples filing jointly or separately. To file a complete and accurate return, taxpayers must report income sources, claim applicable tax deductions, and disclose the correct filing status. Your Social Security number, address, and other personal identifiers are required on all submitted forms.

Taxpayers can also benefit from tax credits and deduction options specific to the state, which may reduce their total tax liability or increase their refund. Filing the return correctly and on time ensures compliance with North Dakota tax laws and helps avoid penalties or delays. If you are unsure whether you need to file, the North Dakota Office of State Tax Commissioner provides helpful guidance at www.tax.nd.gov/individual.

Understanding Your Income and Filing Status

When preparing your North Dakota tax return for 2023, identifying all sources of income and selecting the proper filing status are essential for taxpayers. These decisions affect how you calculate adjusted gross income, determine taxable income, qualify for deductions, and access refunds or credits. Since North Dakota bases its return on your federal tax data, accuracy at the federal level directly influences your state outcome.

Types of Income That Must Be Reported

• Wages and Salaries: Income earned through employment—including wages, salaries, tips, commissions, and bonuses—must be reported on your state return. This is often the largest income category for most taxpayers and is typically documented on your W-2 form.
  
  
• Business Income: Sole proprietors and partners must report business income from North Dakota sources. Even if business expenses are deductible later, you must calculate and disclose your full gross income from business activity before any deductions.
  
  
• Unemployment and Interest Income: Unemployment compensation is taxable unless exempted by law. Interest earned from checking, savings accounts, or certificates of deposit is also reportable. Taxpayers must include all earnings, no matter how small, to avoid underreporting.
  
  
• Capital Gains and Dividends: Profits from selling assets, investments, or real estate are capital gains and must be reported. Dividends from corporate shares or mutual funds are taxable unless specifically excluded under state law.
  
  
• IRA Withdrawals and Pensions: Withdrawals from traditional IRAs are generally taxable, and pensions are usually included in income unless a special state exemption applies. If your Social Security benefits are taxed federally, they are also taxable in North Dakota.

Choosing the correct filing status—such as single, married filing jointly, or head of household—is as essential as identifying income types. Your status determines your standard deduction, applicable tax bracket, and the credits you may claim. If you're unsure which filing category to use, the IRS Filing Status Help tool can guide you.

North Dakota Income Tax Overview and 2023 Updates

North Dakota’s income tax system is modeled closely after federal guidelines but uses its tax brackets, adjustments, and credits. For the 2023 tax year, the state introduced major reforms that simplify the tax structure and reduce tax liability for most filers. These updates benefit individual taxpayers, families, and small business owners who may qualify for expanded deductions and credits.

2023 Tax Bracket Revisions

• North Dakota now uses a three-bracket income tax system instead of five. This streamlined structure makes it easier for taxpayers to determine what portion of their income is taxed at each level.
  
  
• All filing statuses begin with a 0% tax rate on a portion of income. For example, the first $44,725 of income for single filers is taxed at 0%, providing immediate savings on basic earnings.
  
  
• Middle and higher income levels are now taxed at lower rates. Most taxpayers' income above the 0% bracket is taxed at 1.95% or 2.50%, depending on their income.

This shift in brackets means that taxpayers across various income levels will likely owe less than they would have under the old system. A single filer with $40,000 in income would now pay zero state income tax, a significant reduction from previous years.

Key Updates and Adjustments for 2023

• Military service members can now deduct 100% of their National Guard and Reserve pay, including bonuses and training income, from their taxable income.
  
  
• Retired peace officers with at least 20 years of service or those retired due to disability can deduct qualifying retirement benefits.
  
  
• North Dakota now offers an adoption credit equal to 10% of the federal adoption credit, making it more affordable for families seeking to grow through adoption.
  
  
• Automation and apprenticeship credits are now permanent. These provide financial incentives for businesses that invest in workforce development and qualifying automation equipment.

These updates simplify the filing process while offering real financial relief. They also reflect efforts by the state to reward service, promote family growth, and reduce burdens for the average taxpayer. For a full breakdown of current tax law changes, visit the North Dakota Tax Law Changes Summary.

Choosing Between the Standard Deduction and Itemizing

When filing your North Dakota tax return for 2023, one of the most important decisions you'll make is whether to take the standard deduction or itemize your deductible expenses. This decision directly impacts your taxable income, which affects whether you’ll receive a refund or owe additional taxes. Although the standard deduction is the default option for most taxpayers, many people—especially those with higher costs in specific categories—can benefit from itemizing. Your adjusted gross income, tax liability, and even future years' filing strategies could be influenced by this choice.

Standard vs. Itemized: Which Deduction Fits You Best?

• Standard Deduction Simplicity: The standard deduction provides a fixed reduction in taxable income without requiring detailed documentation. This option saves time and reduces filing complexity for taxpayers, especially those with straightforward income and expenses.
  
  
• Itemized Deductions Offer Potential Savings: Taxpayers with significant deductible expenses—such as mortgage interest, medical costs, or charitable contributions—may reduce their tax liability further by itemizing. This route allows you to claim real, itemized reductions instead of a flat-rate deduction.
  
  
• Eligible Categories for Itemizing: Itemized deductions include qualified costs such as property taxes, medical expenses, and charitable donations. Some business-related expenses, when not reimbursed, can also be deducted. You must have records for all costs you plan to deduct.
  
  
• Excess Expenses Over Thresholds: In some cases, you can only deduct the portion of an expense that exceeds a percentage of your adjusted gross income. For example, medical expenses must exceed 7.5% of your AGI to qualify for a deduction, which limits the number of filers who benefit.
  
  
• Entitled to Choose Annually: You can choose the deduction method that offers the most financial benefit each year. This flexibility allows you to respond to life events like marriage, home purchases, or health emergencies that can shift your deduction strategy.

Why Your Choice Matters

Your deduction method determines more than just what you pay this year. It also influences your eligibility for other credits, how your future taxes are calculated, and how adjustments are handled. If you itemize, you may unlock additional credits or reduce your tax burden over multiple years.

Key Tax Deduction Options for North Dakota Taxpayers

Tax deductions are vital in reducing what you owe and increasing your refund when filing your 2023 North Dakota tax return. Some deductions follow federal IRS rules, while others are state-specific. Taxpayers can lower their adjusted gross and taxable income by claiming all eligible deductions, reducing their overall tax liability. Knowing which deductions apply to your situation—especially when itemizing—is essential for accurate reporting and avoiding overpayment.

Medical and Education-Related Deductions

Medical expenses that exceed 7.5% of your adjusted gross income may be deductible, particularly for families with chronic health conditions or large emergency bills. Education-related deductions also offer relief. If you paid interest on a qualified student loan, you may deduct up to a set limit as long as your income is below a certain threshold. These deductions are subject to rules regarding what qualifies as an eligible expense and who can claim them.

Homeownership and Local Tax Costs

Homeowners may benefit from deductions on mortgage interest and real estate taxes. These costs often account for the largest share of itemized deductions for North Dakota filers. Additionally, if you live in a jurisdiction that collects local sales taxes or made high-dollar purchases during the year, you can also claim a deduction for those taxes. 

Ce and Miscellaneous Deductions

Gifts made to qualifying charitable organizations are deductible if properly documented. This includes cash donations, goods, and sometimes, mileage driven for volunteer services. North Dakota also permits state-specific adjustments for military pay, peace officer retirement benefits, and costs related to family care or dependents. While some of these deductions overlap with federal rules, they may vary in how they apply to North Dakota taxpayers.

Deductions must be supported with receipts, statements, or other verification forms. They are not automatically applied—you must claim them on the correct schedule or form. Deductions like these reduce your taxable income but do not directly lower your tax dollar-for-dollar like credits do.

Reporting Business and Self-Employed Expenses

If you are a sole proprietor, freelancer, or small business owner in North Dakota, accurately reporting your business expenses on your 2023 tax return is essential. Business expenses reduce your adjusted gross income and can significantly lower your overall tax liability. These deductible expenses must be ordinary, necessary, and directly tied to the operation of your business during the tax year.

What Qualifies as a Deductible Business Expense

• Office and Operational Costs: This includes rent for office space, utilities, phone service, and internet if used for business purposes.
  
  
• Supplies and Equipment: Items such as computers, software, furniture, and tools necessary for running your business may be fully deductible or depreciated over time.
  
  
• Employee Compensation: Wages, salaries, and specific employee benefits, including employer-paid Social Security and Medicare contributions, may be deducted.
  
  
• Professional Services: Fees paid to accountants, consultants, or legal advisors used for business operations may qualify for deduction.
  
  
• Marketing and Advertising: Costs for print ads, digital campaigns, website maintenance, and branded materials are usually deductible if they promote your business.

Industry-Specific Deductions and Mileage

Some professions allow additional deductions based on industry norms. For instance, travel expenses for real estate professionals or licensing fees for healthcare workers may be considered business expenses. Self-employed individuals who use their vehicle for work purposes can also deduct mileage at the standard IRS rate, provided a log is kept.

Entities, Partnerships, and Filing Differences

North Dakota business filers operating as partnerships or corporations must report expenses differently from sole proprietors. These entities must file separate forms and often deal with more complex reporting systems. Partnership income flows through to individual tax returns via Schedule K-1, while corporate entities typically file their tax returns.

Business owners must distinguish between personal and professional use when claiming any deduction. Expenses used for both must be allocated proportionally. Improper reporting of business deductions can trigger audits, lead to back taxes, or result in the IRS or state agencies disallowing deductions.

Tax Credits That Can Reduce What You Owe

While tax deductions lower your taxable income, tax credits reduce the actual amount of tax you owe. Understanding the difference between these two tax benefits for the 2023 tax year in North Dakota can significantly impact your overall tax liability. Credits are applied after all income and deductions are calculated, offering a direct, dollar-for-dollar reduction in the tax due.

Common Tax Credits for Individuals and Families

Many tax credits are available to North Dakota residents based on federal provisions. These credits are especially helpful to low—and moderate-income households and can lower tax burdens for individuals and small business owners.

• Credit for taxes paid to another state helps residents who earn income in a different state avoid double taxation on the same earnings.
  
  
• The marriage penalty credit is available for married couples filing jointly and is designed to reduce the tax impact that can result from combining two incomes.
  
  
• The adoption credit allows taxpayers to claim 10% of the federal adoption credit on their North Dakota return, offering valuable relief for families expanding through adoption.
  
  
• The family care credit provides financial relief to those supporting dependent relatives, including children or elderly family members with qualifying care expenses.
  
  
• Apprenticeship and automation credits benefit employers who invest in job training or qualifying equipment, encouraging economic growth and workforce development across the state.

How to Claim and Apply Credits

To claim tax credits, taxpayers must complete Schedule ND-1TC and attach it to Form ND-1. Additional supporting documents, such as receipts, federal forms, or verification letters, may be required, especially for adoption, education, or care-related expenses. It’s important to distinguish between refundable and nonrefundable credits. Most North Dakota credits are nonrefundable, meaning they can reduce your tax liability to zero, but not generate a refund beyond that point.

Accurately identifying and claiming available credits ensures you do not overpay the government. When combined with tax deductions and allowable adjustments, credits can significantly reduce the amount of tax owed and improve your financial outcome during filing season.

Filing Methods and How to Pay

Filing your 2023 North Dakota tax return correctly and on time ensures your information is processed efficiently and any refund or payment due is handled promptly. The state offers several options for submitting your return and paying your taxes. Understanding each method helps taxpayers choose the best option and helps avoid late fees or missed submissions.

Electronic and Paper Filing Options

• E-filing is the fastest and most accurate method, minimizing the risk of calculation errors and allowing faster access to refunds through direct deposit.
  
  
• Commercial tax software platforms allow you to complete your federal and North Dakota state returns in one streamlined process, reducing duplication and confusion.
  
  
• Taxpayers who meet specific income, age, or military service criteria may qualify to file for free through the North Dakota Free File Program, accessed through the state tax website.
  
  
• Paper returns are accepted for those who prefer traditional filing; however, they must be signed, include all required forms, and be accompanied by a complete copy of your federal return and any relevant schedules.
  
  
• Mailing your return requires careful attention to detail. You must use the correct address listed in the ND-1 instructions and ensure the envelope is postmarked by the official due date to avoid late filing penalties.

Making Your Tax Payment

• Online payments are highly encouraged. You can make them through the state’s secure system using a debit or credit card or by authorizing a direct withdrawal from your checking or savings account.
  
  
• Paper filers who owe taxes may include a personal check, cashier’s check, or money order made payable to the ND State Tax Commissioner, along with the completed Form ND-1PRV.
  
  
• When submitting a paper payment, write the last four digits of your Social Security number and “2023 Form ND-1” on the memo line of your check or money order to ensure it is correctly applied.

Handling Inability to Pay in Full

• North Dakota allows partial payments if taxpayers cannot pay their full tax balance by the due date, helping them avoid additional enforcement action.
  
  
• Depending on your financial situation, you may qualify for a short-term payment arrangement or installment plan, though interest may continue to accrue on unpaid amounts.
  
  
• To prevent additional penalties or collection activity, it is essential to contact the Office of the State Tax Commissioner as early as possible to discuss your payment options and avoid default.

Submitting your return and payment on time helps you stay compliant, avoid unnecessary interest, and receive any refund you may be due as quickly as possible. Whether filing electronically or by mail, North Dakota offers accessible methods for all taxpayers to meet their obligations efficiently.

Frequently Asked Questions

Who needs to file a North Dakota tax return for 2023?

Any person who was a full-year or part-year resident of North Dakota or earned income from North Dakota sources must file a North Dakota tax return for 2023. This includes employees, self-employed individuals, and nonresidents with income from North Dakota. Use your federal filing status and income thresholds to determine whether a state filing is required.

Can I mail my North Dakota tax return instead of e-filing?

While e-filing is faster and more accurate, you can still mail your completed return using Form ND-1. Include a copy of your federal return and any required state schedules. Mail the documents to the address provided on the final page of the tax instructions. Returns must be postmarked by the filing deadline to be considered on time.

What qualifies as a deductible business expense in North Dakota?

Qualifying business expenses include ordinary costs necessary to operate your trade or profession. Deductible expenses daily include mileage, office rent, equipment, and professional services. North Dakota follows federal guidelines but may apply limited exceptions. Only costs related to business activity should be claimed, and detailed records must be kept.

How do I know if it’s better to itemize deductible expenses or take the standard deduction?

To determine which method provides more value, compare your total deductible expenses to the standard deduction for your filing status. If itemizing allows you to subtract more from your taxable income, it may reduce your tax owed. Consider including mortgage interest, medical bills, or charitable contributions when evaluating which method benefits you most.

Are there limits on how much I can deduct for business-related costs?

Yes, certain business expenses are limited based on tax rules. For example, meal expenses are typically capped at 50%, and some entertainment or travel costs may be non-deductible. Always refer to the latest tax guidance or the appropriate page in the state tax booklet to ensure your deductions comply with North Dakota and IRS standards.

Can one person file for both federal and state returns at once?

If you use approved tax software or a professional preparer, your federal and North Dakota tax returns can be filed together. This option ensures consistency between returns and reduces the risk of errors. However, if filing by mail, you must send each return to the appropriate address separately.

What if I forget to claim a deduction or credit?

If you missed claiming a deduction or credit on your North Dakota tax return for 2023, you can file an amended return to correct the error. Amended returns help you claim any value you’re entitled to receive. Include documentation supporting your change and indicate what was adjusted or added.