Author: Helen Clark
Each tax season, the IRS performs some financial tinkering and re-evaluates the mandatory amounts included in our country’s tax code, to adjust figures to compensate for inflation.
While the adjustments aren’t all significant, they surely aren’t negligible.
With these reforms, taxpayers now make higher retirement account contributions, benefit from higher standard deductions, and save more through inflation-adjusted tax brackets, to mention a few.
2023 Tax Changes: New Brackets and Higher Limits.
Standard Deductions
Every taxpayer gets to benefit through a higher standard deduction this year. For the uninformed, your standard deduction is the total income you don’t owe any federal taxes on.
With this tax benefit, you can leverage a smaller tax payment if your income remains the same or doesn’t increase by 7% and over.
This tax season’s standard deduction details are as follows;
- For household heads, the amount increases from $19,400 to $20,800
- For joint-filing married couples, the amount increases from $25,900 to $27,700.
- For married couples filing separately and single taxpayers, the amount increases from $12,950 to $13,850.
Married taxpayers aged 65 or older can claim additional standard deduction increases of $1,500 from the previous $1,400 limit. Household heads and single individuals, on the other hand, can claim a further expansion of $1,850 from last year’s $1,750.
Tax Savings Through Inflation-Optimized Brackets
Marginal tax rates will remain the same this year as in 2022. The highest rate sits at 37%, and the lowest is at 10%.
However, taxpayers may still find a way to earn more this year than the previous in 2022 before crossing their numbers into the next bracket.
For instance, if you earn $85,000 as a single filer, you qualified close to the top of the 22% federal tax bracket. In 2023, that tax bracket closes out at 95,375.
After that, your income remains in the same tax bracket unless you raise about $11,376 or more.
This overtly-simplified example presumes you have no other income and own no investments. Note, however, that your marginal rate regards only the last dollars you earn and not the entirety of your income. Here’s a table detailing 2023’s tax brackets for single filers and married couples.
Higher Contribution Limits On Retirement Accounts
The IRS now allows more significant contribution limits on individual retirement accounts and 401k.
This tax season, Catch up deposits for contributors aged 50 and older is up from $6,500 to $7,500.
Employee deferral limits, too, are from $20,500 to $22,500. These increase amounts also apply to Thrift Savings, 403 (b), and most 457 plans.
In addition, taxpayers can also enjoy increased contribution limits for IRAs, with $6500 being the limit for 2023, up from 2022’s $6000
Long-Term Capital Gain Taxes
Selling an investment that has appreciated since you bought it and that you’ve owned for over a year generates a long-term capital gain. Your income determines how much the government requires you to pay for these gains.
If you’re single with an income of $44,625 or less, you must pay a 15% long-term capital gain tax. The same goes for household heads with a $59,750 payment and married couples with an $89,250 joint income. Individuals and joint filers with income below these limits won’t owe any capital income gains.
Final Thoughts
As you prepare your financials and get ready to file your taxes, bear in mind that many pandemic-caused tax benefits are no longer valid. Consequently, you may find that you’re eligible for a smaller refund than imagined or owe more than previously thought.
