As the new tax season is upon us, it is a good time to go over the inflation adjustments that the IRS had announced for the 2023 tax year. As a result of the high level of inflation that many taxpayers have seen throughout 2022, several key provisions such as income tax thresholds will increase by roughly 7%. Below are some of the key adjustments that may affect you.
Although the marginal tax rates remain unchanged the federal tax brackets have all increased for 2023. We will see the top tax bracket (37% tax rate) increase to $578,126 for single filers and $693,751 for those who are married filing jointly.
The standard deduction for all has also increased. Single filers will receive a standard deduction of $13,850, up by $900, while married filing jointly standard deduction will be $27,700, up by $1,800.
The Foreign Earned Income exclusion for 2023 will be $120,000, up from $112,000.
There has also been changes on how much you can contribute to your retirement plan. You can contribute up to $22,500 into your 401k plan. The annual contribution limit for IRA’s has also increased to $6,500 ($7,500 if you are aged 50 and over).
We will also see an increase in the Estate Tax lifetime exclusion from $12,060,000 to $12,920,000. The annual gift exclusion has also increased from $16,000 to $17,000 meaning a married couple can now make a gift to up $34,000 without using their Estate tax exclusion.
We will be happy to answer any question you have on the 2023 changes so feel free to get in touch.