EIGHT THINGS TO CONSIDER AS YOU
PREPARE TO FILE YOUR 2023 TAXES
1. Income tax brackets shifted faintly
There are still seven tax rates, but the income ranges (tax brackets) for each rate have been slightly adjusted to accommodate for inflation. For 2023, the following rates and income ranges are applicable:
2. The standard deduction has increased slightly.
After an inflation adjustment, the 2023 standard deduction rises to $13,850 for single taxpayers and married couples filing separately, and to $20,800 for single heads of households, who are typically unmarried and have one or more dependents. For married couples filing jointly, the standard deduction increases to $27,700.
3. Itemized deductions are essentially the same.
For most filers, choosing the greater standard deduction is more practical and eliminates the need to keep track of receipts. However, if you have a significant number of tax-deductible expenses, itemizing may be beneficial.
The regulations for itemized deductions haven't changed significantly in 2023, but they're still worth noting:
State and local taxes: The deduction for state and local income, property, and real estate taxes is limited to $10,000.
The mortgage interest deduction: restricted to $750,000 of debt. People with $1,000,000 in home mortgage debt before December 16, 2017, can still deduct the interest on that loan.
Medical expenses: In 2023, a deduction will only be available for medical costs that surpass 7.5% of one's adjusted gross income (AGI).
Donations to charities: The yearly income tax deduction caps for gifts to public charities in 2023 are 30% of AGI for non-monetary assets (if they are held for more than a year) and 60% of AGI for cash contributions. Giving both cash and non-monetary assets normally has an aggregate cap of 50% of AGI.
Deductions for other items: There are no permissible deductions for other items.
4. The 401(k) and IRA maximums are slightly increased.
The 2023 Roth and traditional IRA contribution caps were somewhat higher than the 2022 levels.
Contributions to an IRA are limited to $6,500 per person, with an additional $1,000 catch-up contribution available to people 50 years of age and above. Furthermore, the tax-deferred and Roth 401(k) contribution caps for 2023 have been raised to $22,500. You are also eligible to make an additional $7,500 catch-up contribution for this tax year if you are 50 years of age or older.
Consider contributing the maximum amount possible to these accounts, if at all possible. By doing this, you may be able to increase your retirement savings significantly and maybe receive a tax deduction.
5. A little bit extra money can be saved in your health savings account (HSA).
The maximum amount you can deposit into an HSA in 2023 is $3,850 for an individual (an increase of $50 from 2021) and $7,750 for a family (an increase of $100). There is a $1,000 catch-up donation available to those who are 55 and older.
You have to be enrolled in a high-deductible health plan (which typically has reduced premiums as well) in order to qualify for an HSA. Find out more about an HSA's advantages.
6. You can receive a tax benefit from the Child Tax Credit.
Deductions lower the amount of your income that is subject to tax, whereas tax credits lower the tax you owe dollar for dollar. The kid Tax Credit is set at $2,000 per kid under the age of 17 in 2023. Moreover, there is a phase-out of the credit that begins at $400,000 for joint taxpayers and $200,000 for single filers. You are eligible to receive a $500 credit for additional qualifying dependents.
7. The exemption from alternative minimum tax (AMT) is higher.
The Tax Cuts and Jobs Act's AMT exemption will remain in effect until 2025, mostly affecting people with incomes exceeding $500,000. The AMT exemption amounts for single taxpayers in 2023 are $81,300, and for married taxpayers filing jointly, they are $126,500. The phase-out criteria are $578,150 for all other taxpayers and $1,156,300 for married taxpayers filing a joint return. (Your AMT exemption starts to taper out at 25 cents for every dollar over the threshold once your income for the AMT reaches the phase-out threshold.)
8. There is an even larger estate tax exemption
In 2023, the inflation-indexed exemption from estate and gift taxes increased to $12,920,000. However, if Congress does nothing, the now-higher exemption could effectively be halved when it expires at the end of 2025.
The yearly gift exclusion, which raises to $17,000 per recipient (up $1,000 from 2022) allows you to send money to your loved ones annually without paying taxes or depleting any of your lifetime estate and gift tax exemption.
AVOID BEING TAKEN BY SURPRISE!
Make sure you've taken your required minimum distribution (RMD) from your retirement accounts before the end of the year if you're 73 years of age or older, or else you'll be penalized 25% on any money that remains undistributed (unless it's your first RMD, in which case you can postpone until April 1, 2024).
This is the ideal moment to contribute to your retirement accounts if you haven't previously. Examine your annual income and make use of any deductions that will help you pay less in taxes. Before you know it, tax season will arrive, and it's never too early to begin planning.
SUCCENTRIX BUSINESS ADVISORS
"Your Full-Service, Cloud-Based Accounting & Tax Professionals."
Accounting | Bookkeeping | Payroll | Tax Preparation | Tax Resolution
Business Advisory | Business Valuation
Get the expert assistance you need this tax season by reaching out to
Succentrix Business Advisors.