10 Changes for Tax Year 2023

How is inflation changing your taxes

Tax Year 2023 Changes

On October 18th, 2022, the IRS made an announcement on sixty tax provisions which include tax rate schedules and other various changes. The Inflation Reduction Act was signed into law in 2022, this this Act included various tax changes. The Inflation Reduction Act also included certain energy related tax breaks and commercial building deductions for being energy efficient.

 

You can read the publication here: Revenue Procedure 2022-38

 

Here are some quick highlights:

 

1. Standard Deduction – The deduction will be going up by $1,800 to $27,700 for those of you that file married jointly. For single and married filing separate, your standard deduction will be going up by $900 for a deduction of $13,850. For Head of households, your standard deduction is going up by $1400 to $20,800. Majority of tax payers use the standard deduction, so this is a small help on reducing your taxable income. This also benefits your children’s tax liability if they are an employee of your small business. Read about hiring your kids.

 

2. Marginal Tax Bracket increased

 Here is the tax bracket just for married filing jointly. If single, HOH, or married filing separate, you can see all the tax brackets on the publication. The lowest rate is 10% if your make less than $22,000 for MFJ and $11,000 for single filers.

 

Income: Not over $22,000

Tax: 10% of the taxable income

Income: Over $22,000 but not over $89,450

Tax: $2,200 plus 12% of  the excess over $22,000

Income: Over $89,450 but not over $190,750

Tax: $10,294 plus 22% of  the excess over $89,450

Income: Over $190,750 but not over $364,200

Tax: $32,580 plus 24% of  the excess over $190,750

Income: Over $364,200 but not over $462,500

Tax: $74,208 plus 32% of the excess over $364,200

Income: Over $462,500 but not over $693,750

Tax: $105,664 plus 35% of the excess over $462,500

Income: Over $693,750

Tax: $186,601.50 plus 37% of  the excess over $693,750

 

3. Earned Income Tax Credit – The credit increased to $7,430 from $6,935, if you have three of more qualifying children. For the full table, please reference the above publication.

 

4. Health flexible spending arrangements increased to $3,050

 

5. Medical Savings Account – the deductible and max out of pocket amounts all changed.

Single

Annual deduction: not less than $2,650 but not more than $3,950.

Max out of pocket: $5,300 

MFJ

Annual Deductible: not less than $5,300, but not more than $7,900

Max out of pocket: $9,650

 

6. Foreign Earned Income Exclusion: It is now $120,000, up $8,000 from $112,000

 

7. The exclusion for decedents of estates increased from $12,060,000 to $12,920,000

 

8. Gifting increased from $16,000 to $17,000

 

9. For 2023, student loans will start earning interest again. The $2500 maximum deduction for interest paid on qualified education loans will start to phase out at $75,000 ($155,000 for MFJ) and completely phased out once your AGI is over $90,000 ($185,000 for MFJ)

 

10. A business can’t use the cash method of accounting once you have an average of $29,000,000 in gross receipts.

 

Remember that tax preparation is all about tax planning and not just tax preparation. Once it’s time to start tax prep, it’s too late to do the tax planning part. Tax years end mostly on 12/31, so be sure to get with your tax advisors prior to 12/31. You can schedule a consultation with Coastal’s Tax Advisors.