As we enter the 2023 tax year, individuals and businesses should be aware of several significant changes and updates to the U.S. tax code. From adjusted income tax brackets to changes in contribution limits for retirement accounts, staying informed can help you plan better for your taxes. Here's a breakdown of the significant tax changes for 2023 and how they might affect your tax planning.
Updated Income Tax Brackets
Adjustments for Inflation
The tax brackets have been adjusted in 2023 to reflect inflation. While the seven tax rates remain the same, the income ranges for each bracket have shifted slightly. Understanding where your income falls within these new brackets is vital to assessing your tax liability accurately.
Standard Deduction Increase
What You Can Deduct in 2023
There's a slight increase in the standard deduction for the 2023 tax year. For single filers and married couples filing separately, the standard deduction is now $13,850. Heads of households can deduct $20,800, and married couples filing jointly are eligible for a $27,700 deduction.
Itemized Deductions: Mostly Unchanged
Understanding Your Options
Itemized deductions remain largely the same, but it's essential to review whether itemizing or taking the standard deduction will be more beneficial for you. Remember, the state and local taxes (SALT) deduction is capped at $10,000, and there are specific limits on deductions like mortgage interest and medical expenses.
IRA and 401(k) Contribution Limits
Boosting Your Retirement Savings
The contribution limits for IRAs and 401(k)s have slightly increased in 2023. The new limit for IRA contributions is $6,500, with an additional $1,000 catch-up contribution for those 50 and older. For 401(k) plans, the limit is $22,500, plus a $7,500 catch-up contribution for those aged 50 and above.
Health Savings Account (HSA) Contribution Limits
More Savings for Health Expenses
The maximum HSA contribution for 2023 is now $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution for those 55 and older. HSAs are a great way to save for medical expenses, especially if enrolled in a high-deductible health plan.
Child Tax Credit
Tax Breaks for Families
The Child Tax Credit for 2023 remains at $2,000 per child under age 17. However, keep an eye on the income phase-out thresholds, which start at $400,000 for joint filers and $200,000 for single filers. There's also a $500 credit available for other qualified dependents.
Alternative Minimum Tax (AMT) Adjustments
AMT Exemption Increases
The AMT exemptions have increased in 2023, affecting mainly households with higher incomes. The new exemption amounts are $81,300 for single filers and $126,500 for married taxpayers filing jointly, with adjusted phase-out thresholds.
Estate Tax Exemption
Higher Exemption Limits
The estate and gift tax exemption has been increased to $12,920,000 in 2023. This higher exemption is temporary, so it's crucial to plan accordingly, especially as the current levels expire at the end of 2025.
Staying up-to-date with these tax changes is essential for effective tax planning in 2023. Whether you're an individual taxpayer or a business owner, understanding these updates can help you make more informed decisions and potentially save on your taxes.
Need Professional Tax Planning Advice?
Certainty Tax Advisors is here to assist if you're looking for expert guidance to navigate the 2023 tax changes. Certainty Tax Advisors can help you understand how these changes affect your tax situation and plan accordingly. Contact us at 718-676-4185 or visit our contact page to schedule a consultation. Let us help you optimize your tax strategy for 2023 and beyond.