At Maicher CPA Pllc, we provide a full range of tax services to help clients, including small business owners, reduce taxes. The 2023 tax year is just days away and the new year ushers in some important developments concerning the tax laws. What are some of the key ones?
STANDARD DEDUCTION: The standard deduction for married couples filing jointly for tax year 2023 increases to $27,700, up from $25,900 for 2022. For single taxpayers and married individuals filing separately, the standard deduction increases to $13,850 for 2023, up from $12,950; and for heads of households, the standard deduction will be $20,800, up from $19,400.
TAX BRACKETS: For 2023, the maximum marginal tax rates, defined as the amount of additional tax paid for every additional dollar earned as income, remains at 37% for individual single taxpayers with incomes exceeding $578,125 ($693,750 for married couples filing jointly). The other rates are:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly),
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly),
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly),
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly), and
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% for single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
ALTERNATIVE MINIMUM TAX (AMT): The AMT, defined as the excess of the tentative minimum tax over the regular tax, for 2023 is $81,300 and begins to phase out at $578,150 with the AMT at $126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300.
EARNED INCOME TAX CREDIT: The maximum earned income tax credit, defined as the refundable tax credit for low to moderate income working individuals and couples, is $7,430 for qualifying taxpayers who have three or more qualifying children, which is up from $6,935 for 2022.
401(K) AND IRA CONTRIBUTION LIMITS: For individuals, the maximum contribution to 401(k) plans in 2023 is $22,500, up from $20,500 in 2022. This increase will also affect 403(b) plans, most 457 plans, and the government’s Thrift Savings Plan. The annual ‘catch-up’ contribution limit for those age 50 or older increases to $7,500. Additionally, IRA contributions increase to $6,500 in 2023 with the annual ‘catch-up’ contribution limit for those age 50 or older remaining at $1,000. This allows an individual who turns 50 or older at any point in 2023, and who is eligible for an IRA, to contribute a total of $7,500 to their IRA.
HEALTH SAVING ACCOUNTS: In 2023, the maximum annual contribution for individuals is $3,850 up from $3,650 in 2022 and for families the maximum contribution is $7,750, up from $7,300 in 2022. For those 55 or older, a $1,000 annual catch-up contribution is permitted.
Take-away: The changes for the 2023 tax year may impact your strategies for the upcoming year. Make an appointment with Maicher today to see what strategies make the most sense in your particular case.
IRS Publication – “IRS Increases Mileage Rate for Remainder of 2022.” (last reviewed December 8 2022).
“IRS Sets Higher 2023 Tax Brackets, Standard Deductions and Other Inflation Adjustments,” Forbes (October 18, 2022).