Annual Federal Tax Update

This article is the part 2 of 4 in a series:

A curated list of updates to prepare you for tax season 2023

The IRS adjusts various tax-related thresholds annually for inflation. For 2023, these adjustments include changes in tax brackets, standard deductions, and other key figures. Here’s a summary of these changes:

Tax Brackets for 2023

The tax rate brackets have been adjusted upward due to inflation. This means that each bracket’s income range has increased, potentially reducing the tax rate applied to a portion of your income.

Standard Deduction Increase

The standard deduction has increased significantly for all filing statuses in 2023.

  • For single filers and married individuals filing separately, the standard deduction rose by a notable amount.
  • For heads of household, the increase was even more substantial.
  • Married couples filing jointly saw the largest increase in their standard deduction.

Alternative Minimum Tax (AMT) Exemptions

The AMT exemption amounts and the phase-out thresholds have also been raised.

These adjustments help prevent middle-income taxpayers from being subject to this parallel tax system, originally designed to ensure that high-income individuals pay a minimum amount of tax.

Estate Tax Exclusion

The estate tax exemption amount, which is the amount you can leave to heirs without facing federal estate tax, has also increased.

This adjustment helps account for inflation and affects estate planning for high-net-worth individuals.

Retirement Account Contribution Limits

The contribution limits for various retirement accounts, including IRAs and employer-sponsored plans like 401(k)s, have been adjusted.

This allows individuals to contribute more to their retirement savings, adjusting for the cost of living increases.

Flexible Spending Account (FSA) Limits

The maximum contribution limits for health flexible spending arrangements (FSAs) have been raised.

This change allows individuals to set aside more pre-tax dollars for health care expenses.

Gift Tax Exclusion

The annual exclusion for gifts has been increased. This means individuals can give more to others without incurring the gift tax or using up part of their lifetime gift and estate tax exemption.

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