Key Changes to Tax Provisions for 2023: What You Need to Know

Key Changes to Tax Provisions for 2023: What You Need to Know

Date:

Tax filing Extension must be postmarked no later than Oct 16th 2023

(https://www.usps.com/taxes/)

 

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The IRS has rolled out several adjustments for the 2023 tax year. This guide will break down these updates in a simple, easy-to-understand manner to help you prepare for your 2023 tax returns, which are to be filed in 2024.

 

Energy Efficiency Incentives:

  • In 2023, there are tax breaks related to energy. Specifically, deductions for energy-efficient commercial buildings are now linked to inflation.
  • If a building's annual energy and power costs are reduced by more than 25%, the deduction value can range between $0.54 and $1.07. Another deduction category might range between $2.68 and $5.36, depending on the percentage reduction in energy costs.

 

Standard Deduction Updates:

  • Married couples filing jointly will have a standard deduction of $27,700, an increase of $1,800 from 2022.
  • Single taxpayers and married people filing separately get a boost to $13,850, up by $900.
  • For heads of households, the standard deduction is now $20,800, $1,400 more than last year.

 

Income Tax Rates:

  • Top earners, with an income above $578,125 for singles or $693,750 for joint filings, will be taxed at 37%.
  • Below are the other tax brackets:
    • 35% for incomes over $231,250 ($462,500 for joint filings)
    • 32% for over $182,100 ($364,200 for joint filings)
    • 24% for over $95,375 ($190,750 jointly)
    • 22% for over $44,725 ($89,450 jointly)
    • 12% for over $11,000 ($22,000 jointly)
    • The lowest rate, 10%, applies to incomes of $11,000 or less ($22,000 for joint filings).

 

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Notable Provisions:

  • The Alternative Minimum Tax (AMT) exemption for 2023 is $81,300 and starts to phase out at higher incomes.
  • Earned Income Tax Credit is at a maximum of $7,430 for those with three or more kids.
  • The qualified transportation fringe benefit and parking limitation is now $300 per month.
  • Health flexible spending contributions have a cap of $3,050, with a maximum unused amount carryover of $610.
  • Deductibles and out-of-pocket expenses for Medical Savings Accounts have increased, with specifics depending on coverage type.
  • The foreign earned income exclusion for 2023 is $120,000.
  • Estate tax exemption for those passing away in 2023 is set at $12,920,000.
  • Gift exclusions have risen to $17,000 for 2023.
  • Adoption credits for 2023 can go up to $15,950.

 

Items Without Change:

  • Personal exemptions remain at $0, as set by the Tax Cuts and Jobs Act.
  • There's no limit on itemized deductions.
  • The Lifetime Learning Credit phase-out thresholds remain unchanged.

 

Conclusion:

These changes reflect the IRS's commitment to keeping tax provisions in line with inflation and current economic conditions. While some areas have seen significant modifications, others remain consistent with previous years. Taxpayers should consider consulting with a tax professional to understand how these changes might impact their individual situations.

 

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