Adjusted Income Tax Brackets:
- The income tax brackets for 2023 have undergone slight adjustments to accommodate inflation. Despite still maintaining seven tax rates, each rate’s income ranges (tax brackets) have shifted.
Increased Standard Deduction:
- After adjusting for inflation, the standard deduction for 2023 has slightly increased. It stands at $13,850 for single filers, married couples filing separately, and $20,800 for single heads of household. For married couples filing jointly, the standard deduction rises to $27,700.
Itemized Deductions:
- Itemized deductions remain largely unchanged for 2023. Notable points include:
- A $10,000 cap on deductions for state and local income taxes, property taxes, and real estate taxes.
- A limit of $750,000 on the mortgage interest deduction.
- Medical expenses are deductible only if they exceed 7.5% of adjusted gross income (AGI).
- Deduction limits for charitable donations stand at 30% of AGI for contributions of non-cash assets and 60% of AGI for cash contributions. The overall limit is typically 50% of AGI for both cash and non-cash assets.
Increased Contribution Limits for Retirement Accounts:
- Contribution limits for traditional IRAs, Roth IRAs, tax-deferred 401(k)s, and Roth 401(k)s have slightly increased for 2023. Individuals can contribute up to $6,500 to an IRA, with an additional $1,000 catch-up contribution for those aged 50 and older. Contribution limits for 401(k)s have risen to $22,500, with a $7,500 catch-up contribution for individuals aged 50 and older.
Expanded Health Savings Account (HSA) Contributions:
- The maximum contributions to HSAs have increased for 2023. Individuals can now contribute up to $3,850, with an additional $1,000 catch-up contribution for those aged 55 and older. Family contributions have risen to $7,750.
Child Tax Credit:
- The Child Tax Credit remains at $2,000 per child under age 17 for 2023. However, it is subject to phase-out starting at $400,000 for joint filers and $200,000 for single filers. A $500 credit is available for other qualified dependents.
Adjustments to Alternative Minimum Tax (AMT) Exemption:
- The AMT exemption for 2023 has increased, affecting mainly households with incomes over $500,000. Exemptions stand at $81,300 for single filers and $126,500 for married taxpayers filing jointly. Phase-out thresholds are $1,156,300 for married taxpayers filing jointly and $578,150 for all other taxpayers.
Higher Estate Tax Exemption:
- The estate and gift tax exemption for 2023 has risen to $12,920,000, indexed to inflation. The annual gift exclusion also increased to $17,000 per recipient.