Dec 01, 2022
If you’re sick of inflation, you’re not alone. This year, inflation rates in the U.S. have been the highest we’ve seen in more than 30 years. Headlines each day remind us that it’s robbing us of purchasing power. But recently, the IRS took action that could be good news for your 2023 tax bill: It announced a variety of tax-related adjustments designed to offset the effects of inflation. These adjustments generally apply to the 2023 tax year, for returns that will be filed in 2024.
These changes are an annual occurrence and are based on the Chained Consumer Price Index for All Urban Consumers. The IRS makes these adjustments to counter something called “bracket creep,” where inflation pushes people’s incomes into higher tax brackets. The IRS’s action could help you stay in a lower tax bracket, and possibly lower your tax bill in 2024.
For 2023, the IRS revised the tax brackets, raising the income thresholds by roughly 7%, as follows:
Here are some other highlights:
- The standard deduction for married couples filing jointly will increase by $1,800, to $27,700 for 2023. For single individuals, the standard deduction will increase by $900, to $13,850.
- The estate tax exclusion amount for decedents who die during 2023 will go up to $12,920,000. This is an increase of $860,000 over the 2022 level.
- The annual gift tax exclusion amount has increased to $17,000, up from $16,000 per person per year.
- The new maximum income levels for a zero capital gains tax rate and a 15 percent capital gains tax rate are as follows:
Recently, the IRS announced increases in the amount individuals can contribute to their 401(k) and IRA plans. Participants in 401(k), 403(b), and most 457 plans will be able to contribute up to $22,500 in 2023, up from $20,500. The catch-up contribution for individuals over 50 increases to $7,500, up from $6,500 this year. The limit on annual IRA contributions will increase to $6,500, up from $6,000, while the IRA catch-up contribution for individuals over 50 will remain at $1,000.
In this blog, we’ve highlighted the changes that will affect most people, but there may be other changes important to your particular tax situation. As you plan for 2023, consider talking with your tax professional about ways you can maximize your tax savings next year. You can reach our team of accountants at 319-364-2945 in Cedar Rapids or at 319-339-4884 in Iowa City.