Getting Ready for 2023 Taxes

There has been so much talk about high inflation and rising costs, but there may be a small upside. Every year, the IRS makes cost-of-living adjustments (COLAs). In October, they announced the inflation-adjusted tax brackets, plus more than 60 other tax provisions, which may provide some tax relief in 2023.

 

2023 Income Tax Brackets

For 2023, the highest income tax bracket of 37% applies when taxable income hits:

 

  • $693,750 for married individuals filing jointly and surviving spouses
  • $578,125 for single individuals
  • $578,100 for heads of households
  • $346,875 for married individuals filing separately
  • $14,450 for estates and trusts

2023 Standard Deduction

The standard deduction for 2023 is:

  • $27,700 for married individuals filing jointly and surviving spouses
  • $20,800 for heads of households
  • $13,850 for single individuals and married individuals filing separately

The standard deduction for a dependent is limited to the greater of $1,250 or the sum of $400 plus the dependent’s earned income. Individuals who are blind or at least 65 years old get an additional standard deduction of $1,500 for married taxpayers and surviving spouses, or $1,850 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2023

The AMT exemption for 2023 is:

  • $126,500 for married individuals filing jointly and surviving spouses
  • $81,300 for single individuals and heads of households
  • $63,250 for married individuals filing separately
  • $28,400 for estates and trusts

The exemption amounts phase out in 2023 when AMT exceeds:

  • $1,156,300 for married individuals filing jointly and surviving spouses
  • $578,150 for single individuals, heads of households, and married individuals filing separately
  • $94,600 for estates and trusts

Expensing Code Sec. 179 Property in 2023

For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.

Estate and Gift Tax Adjustments for 2023

The following inflation adjustments apply to federal estate and gift taxes in 2023:

  • the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens
  • the federal estate tax exclusion is $12,920,000
  • the maximum reduction for real property under the special valuation method is $1,310,000

2023 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2023 is $120,000. The IRS also provided inflation-adjusted amounts for the:

  • adoption credit
  • earned income credit
  • excludable interest on U.S. savings bonds used for education
  • various penalties
  • many other provisions

Effective Date of 2023 Adjustments

These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.

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