Tax season is an unavoidable reality, and it’s important to stay on top of upcoming changes in the tax code. The 2021 filing season is just around the corner and taxpayers will have to adjust to the Tax Cuts and Jobs Act (TCJA) that was signed into law in December 2017. As we await the 2021 filing season, it’s essential to consider the changes that will be taking effect as part of the 2023 filing year. Here’s a breakdown of the key changes to be aware of when filing taxes for 2023.
Increase in Standard Deduction
The TCJA increased the standard deduction to $12,000 for single taxpayers and $24,000 for married couples filing jointly. This new amount is significantly higher than the previous standard deduction of $6,500 for single taxpayers and $13,000 for married couples, which was in place for 2017. This means that taxpayers who don’t itemize their deductions can take a higher standard deduction when filing their returns. The standard deduction is set to increase by an additional $200 for single taxpayers and $400 for married couples filing jointly, bringing the total deduction up to $12,200 and $24,400 respectively. This increase is effective for the 2023 tax year.
Tax Brackets Adjusted
The TCJA also adjusted the seven tax brackets, with the top rate being set at 37%. However, the TCJA also stipulates that the brackets will be adjusted for inflation every year, and the 2023 filing year will be no exception. The IRS has announced that the new brackets for 2023 will be as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. In addition, the income thresholds for each bracket will also be adjusted for inflation.
Changes to Deductions
The TCJA also changed the way deductions work for the 2023 filing year. While the standard deduction is set to increase, the total amount of deductions taxpayers can take is limited. The TCJA limited the total amount of itemized deductions taxpayers can take to $10,000, which includes deductions for mortgage interest, state and local taxes, and charitable donations. This means that taxpayers will not be able to take advantage of some of the deductions they may have been able to take advantage of in previous years.
New Tax Credits
The TCJA also introduced a number of new tax credits for the 2023 filing year. The most notable of these is the Child Tax Credit, which is set to increase from $1,000 to $2,000 per child. This is a significant increase that can help taxpayers save money on their taxes. In addition, the TCJA also introduced a new $500 tax credit for non-child dependents, such as elderly parents or disabled adults.
Changes to Retirement Accounts
The TCJA also made significant changes to retirement accounts for the 2023 filing year. The most notable of these changes is the increase in the contribution limit for 401(k)s, which will increase from $18,000 to $19,000. In addition, the IRA contribution limit will increase from $5,500 to $6,000. These changes will help taxpayers save more money for retirement.
Conclusion
Tax season can be stressful, but it’s important to stay informed about the changes that will be taking effect for the 2023 filing year. The TCJA made a number of changes to the tax code, including an increase in the standard deduction, adjustments to the tax brackets, and the introduction of new tax credits. It’s also important to note that the contribution limits for retirement accounts will be increasing for the 2023 filing year. By staying informed about the changes that will be taking effect, taxpayers can make sure they get the most out of their tax returns.