New Tax Laws for 2023.
Taxable Income
For both individuals and corporations' taxable income is the amount of income subject to tax, after deductions and exemptions.
Tax Brackets for 2023
An important part of this process is to know the likely tax bracket you'll be in, the limits that could impact you, and the potential deductions available. Income ranges (tax brackets) have changed for 2023 to account for inflation.
View - IRS 2023 Tax Bracket Tables
Standard Deduction
In 2023, the standard deduction increased due to inflation.
Filing Status Deduction Amount
Single $13,850
Married Filing Jointly $27,700
Married Filing Separately $13,850
Heads of Household $20,800
Surviving Spouse $27,700
Table 9 - Revenue Procedure 2022-38 (2023)
For 2023, the additional standard deduction for married taxpayers 65 or over or blind will be $1,500. For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2023 will be $1,850.
For 2023, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,250 or the sum of $400 and the individual’s earned income.
Itemized Deductions Tax Law
The following rules are in place for itemized deductions for 2023
State and Local Taxes: State and local income and sales taxes, personal property taxes, and real estate taxes is capped at $10,000.
Home Mortgage Interest: You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December The mortgage interest of $750,000 or less of indebtedness. Mortgage interest of $1 million or less if incurred before Dec. 16, 2017
Investment Interest Expenses: The deduction applies to interest on money borrowed to buy property that will produce investment income—interest, dividends, annuities or royalties—or that you expect to appreciate in value, allowing you to sell it at a gain in the future. However, you can't deduct interest when the property you buy produces nontaxable income, such as tax-exempt bonds. In any year, you cannot deduct more in investment interest than you earned in investment income. However, you can carry forward your "disallowed" investment interest to the next year.
Medical and Dental Expenses: Expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted.
Charitable Contributions: The annual income tax deduction limits for gifts to public charities are 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash.
Educators Classroom Supplies: $250 (for educators buying classroom supplies)
Student Loan Interest: Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily prepaid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. You claim this deduction as an adjustment to income, so you don't need to itemize your deductions. Income phaseout limits apply.
Gambling Loses: Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses. You typically cannot offset your winnings from one day with your losses from another day in o:rder to report your net winnings or losses. Your winnings and losses typically need to be separated and reported individually.
IRA contribution limits
The IRA and Roth contribution limits for Individuals for 2023 is $6,000 and those age 50 and older qualify to make an additional contribution of $1,000.
401(k) limits
The 401(k) contribution limit for 2023 is $22,500 for employee contributions and $66,000 for combined employee and employer contributions. If you're age 55 or older, you're eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000.
Health Savings Account (HSA)
For 2023, For self-only coverage you can contribute up to $3,850. If you have family coverage the maximum contribution is $7,750.
People age 55 and older can contribute an extra $1,000 catch-up contribution. To be eligible for an HSA, you must be enrolled in an HSA eligible health plan. (which usually has lower premiums as well).
Child Tax Credit
The maximum non-refundable tax credit per qualifying child is $2000 for children under 17.
To qualify for the Child Tax Credit you must meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.
The refundable portion, also known as the "Additional Child Tax Credit", is worth up to $1,600.
For OTHER qualified dependents, there is a modest, inflation-adjusted increase to families who are eligible for the additional Child Tax Credit of $200 in 2023
View - IRS rules to qualify for the Child Tax Credit
View - IRS rules for Other qualifying dependents
Alternative Minimum Tax (AMT)
High-income earners usually have to pay the Alternative Minimum Tax (AMT). This tax is triggered when taxpayers have more income than an exemption amount that can be adjusted annually to keep pace with inflation. You must calculate your tax twice if your income is greater than the AMT exemption. Calculate the regular income tax you'd owe first, then figure the AMT by adding back in certain deductions that you claimed. You must then pay the tax that's the highest. The 2023 AMT exemption for individuals is $81,300, for joint filers, $126,500 and for married filing separately $63,250. The AMT exemption begins to disappear and phase out after you reach a certain income level, but these are very high thresholds: $578,150 and $1,156,300 respectively for tax year 2023.
Earned Income Credit
The Earned Income Credit is adjusted for inflation annually. Those filing for EIC cannot have investment income in excess of $11,000. Taxpayers with no qualifying children have to be 25 or under 65 to claim the credit.
View - IRS - EIC tables.
View - IRS - Requirements to file for EIC.
Estate Tax Exemption
The estate and gift tax exemption, which is indexed to inflation, will be higher this year, rising to $12.92 million for 2023. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn't act.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, increases to $17,000 per recipient (up $1,000 from 2022).
Note:
Personal exemption deductions are no longer permitted. View - IRS current rules on personal exemption deductions
Miscellaneous deductions: Miscellaneous itemized deductions are no longer permitted.
New Tax Laws for 2023.
Taxable Income
For both individuals and corporations' taxable income is the amount of income subject to tax, after deductions and exemptions.
Tax Brackets for 2023
An important part of this process is to know the likely tax bracket you'll be in, the limits that could impact you, and the potential deductions available. Income ranges (tax brackets) have changed for 2023 to account for inflation.
View - IRS 2023 Tax Bracket Tables
Standard Deduction
In 2023, the standard deduction increased due to inflation.
Filing Status Deduction Amount
Single $13,850
Married Filing Jointly $27,700
Married Filing Separately $13,850
Heads of Household $20,800
Surviving Spouse $27,700
Table 9 - Revenue Procedure 2022-38 (2023)
For 2023, the additional standard deduction for married taxpayers 65 or over or blind will be $1,500. For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2023 will be $1,850.
For 2023, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,250 or the sum of $400 and the individual’s earned income.
Itemized Deductions Tax Law
The following rules are in place for itemized deductions for 2023
State and Local Taxes: State and local income and sales taxes, personal property taxes, and real estate taxes is capped at $10,000.
Home Mortgage Interest: You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December The mortgage interest of $750,000 or less of indebtedness. Mortgage interest of $1 million or less if incurred before Dec. 16, 2017
Investment Interest Expenses: The deduction applies to interest on money borrowed to buy property that will produce investment income—interest, dividends, annuities or royalties—or that you expect to appreciate in value, allowing you to sell it at a gain in the future. However, you can't deduct interest when the property you buy produces nontaxable income, such as tax-exempt bonds. In any year, you cannot deduct more in investment interest than you earned in investment income. However, you can carry forward your "disallowed" investment interest to the next year.
Medical and Dental Expenses: Expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted.
Charitable Contributions: The annual income tax deduction limits for gifts to public charities are 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash.
Educators Classroom Supplies: $250 (for educators buying classroom supplies)
Student Loan Interest: Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily prepaid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. You claim this deduction as an adjustment to income, so you don't need to itemize your deductions. Income phaseout limits apply.
Gambling Loses: Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses. You typically cannot offset your winnings from one day with your losses from another day in o:rder to report your net winnings or losses. Your winnings and losses typically need to be separated and reported individually.
IRA contribution limits
The IRA and Roth contribution limits for Individuals for 2023 is $6,000 and those age 50 and older qualify to make an additional contribution of $1,000.
401(k) limits
The 401(k) contribution limit for 2023 is $22,500 for employee contributions and $66,000 for combined employee and employer contributions. If you're age 55 or older, you're eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000.
Health Savings Account (HSA)
For 2023, For self-only coverage you can contribute up to $3,850. If you have family coverage the maximum contribution is $7,750.
People age 55 and older can contribute an extra $1,000 catch-up contribution. To be eligible for an HSA, you must be enrolled in an HSA eligible health plan. (which usually has lower premiums as well).
Child Tax Credit
The maximum non-refundable tax credit per qualifying child is $2000 for children under 17.
To qualify for the Child Tax Credit you must meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.
The refundable portion, also known as the "Additional Child Tax Credit", is worth up to $1,600.
For OTHER qualified dependents, there is a modest, inflation-adjusted increase to families who are eligible for the additional Child Tax Credit of $200 in 2023
View - IRS rules to qualify for the Child Tax Credit
View - IRS rules for Other qualifying dependents
Alternative Minimum Tax (AMT)
High-income earners usually have to pay the Alternative Minimum Tax (AMT). This tax is triggered when taxpayers have more income than an exemption amount that can be adjusted annually to keep pace with inflation. You must calculate your tax twice if your income is greater than the AMT exemption. Calculate the regular income tax you'd owe first, then figure the AMT by adding back in certain deductions that you claimed. You must then pay the tax that's the highest. The 2023 AMT exemption for individuals is $81,300, for joint filers, $126,500 and for married filing separately $63,250. The AMT exemption begins to disappear and phase out after you reach a certain income level, but these are very high thresholds: $578,150 and $1,156,300 respectively for tax year 2023.
Earned Income Credit
The Earned Income Credit is adjusted for inflation annually. Those filing for EIC cannot have investment income in excess of $11,000. Taxpayers with no qualifying children have to be 25 or under 65 to claim the credit.
View - IRS - EIC tables.
View - IRS - Requirements to file for EIC.
Estate Tax Exemption
The estate and gift tax exemption, which is indexed to inflation, will be higher this year, rising to $12.92 million for 2023. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn't act.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, increases to $17,000 per recipient (up $1,000 from 2022).
Note:
Personal exemption deductions are no longer permitted. View - IRS current rules on personal exemption deductions
Miscellaneous deductions: Miscellaneous itemized deductions are no longer permitted.