Tax Adjustments to Know When Filing your 2023 Federal Tax Return
January 12, 2024
The Internal Revenue Service (IRS) announced inflation adjustments for tax year 2023. These inflation adjustments are some of the biggest adjustments made in history. The most noteworthy increases are about 7% for standard deduction amounts, income tax brackets and the earned income tax credit for tax year 2023. This means that some people might be in a lower tax bracket than they were previously.
Here is a summary of what the new tax brackets and tax rates look like for each filing status:
2023 Tax Brackets
| Tax Rate | Single Filers | Heads of Households | Married Filing Jointly |
|---|---|---|---|
| 10% | $0 to $11,000 | $0 to $15,700 | $0 to $22,000 |
| 12% | $11,001 to $44,725 | $15,701 to $59,850 | $22,001 to $89,450 |
| 22% | $44,726 to $95,375 | $59,851 to $95,350 | $89,451 to $190,750 |
| 24% | $95,376 to $182,100 | $95,351 to $182,100 | $190,751 to $364,200 |
| 32% | $182,101 to $231,250 | $182,101 to $231,250 | $364,201 to $462,500 |
| 35% | $231,251 to $578,125 | $231,251 to $578,100 | $462,501 to $693,750 |
| 37% | $578,126 or more | $578,101 or more | $693,751 or more |
Source: www.irs.gov
With the recently announced inflation adjustments, even more people may move into claiming the standard deduction instead of itemizing their deductions since their standard deductions may be more. The new standard deductions for each filing status are shown in the table below:
2023 Standard Tax Deductions
| Single Filers | Heads of Household | Married Filing Jointly |
|---|---|---|
| $13,850 (up $900) | $20,800 (up $1,400) | $27,700 (up $1,800) |
Following tax reform, the IRS reports that close to 90% of taxpayers now take the standard deduction instead of itemizing their deductions.
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Adjustments to Exemptions, Exclusions and Credits
- Earned Income Tax Credit
For tax year 2023, the maximum amount is $7,430 for qualifying taxpayers who have three or more qualifying children. This amount is up from $6,935 for tax year 2022. - Adoption Credit
The maximum credit allowed for adoptions for tax year 2023 is up to $15,950, up from the maximum of $14,890 for tax year 2022. - Estate Tax Exclusion
The amount you can give during your lifetime or after your death to avoid paying federal estate and gift taxes has increased from $12,060,000 to $12,920,000. - Gift Tax Exclusion
The annual exclusion for gift tax increased to $17,000 per recipient for calendar year 2023, up from $16,000. - Foreign Earned Income Exclusion
For taxpayers earning foreign income, the income exclusion for tax year 2023 is $120,000, up from $112,000 for tax year 2022. - Alternative Minimum Tax Exemption for Single Filers
The alternative minimum tax exemption in 2023 for single filers is $81,300 and begins to phase out at $578,150. In 2022, the exemption amount was $75,900 and began to phase out at $539,900. - Alternative Minimum Tax Exemption for Joint Filers
The alternative minimum tax exemption in 2023 for married couples filing jointly is $126,500 and begins to phase out at $1,156,300. In 2022, the exemption amount was $118,100 and began to phase out at $1,079,800.
How to get into a lower tax bracket and pay a lower federal income tax rate
Two common ways of reducing your tax bill are using credits and taking deductions.
- Tax credits can reduce your tax bill on a dollar-for-dollar basis; they don’t affect what bracket you’re in.
- Tax deductions reduce how much of your income is subject to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So, if you fall into the 22% tax bracket, a $1,000 deduction could save you $220.
Take all the tax deductions you can claim–they can reduce your taxable income and could kick you into a lower bracket, which means you pay a lower tax rate.
GBU and its agents do not provide tax, legal or investment advice. Please consult with a tax, legal or investment professional prior to the purchase of any contract.
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