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The latest increases in the consumer price index will impact not only your current financial situation, but also your 2023 tax return (that is, the return you file in April 2024). That’s because the Federal Tax Code provides for mandatory annual adjustments to certain tax items based on inflation.
The IRS recently confirmed that inflation adjustments will be made for the 2023 tax year. These adjustments will affect several tax items, notably the standard deduction, which is designed to lower taxable income. Here’s the breakdown of how these changes will affect your tax bill.
2023 Standard Deduction
Since the standard deduction increased due to tax reform several years ago, nearly 90% of taxpayers currently use it to file their taxes. So an increase of about 7% to $13,850 (up from $12,950) for individuals and $27,700 (up from $25,900) for married couples filing jointly will be a welcome change. The additional standard deduction for blind people and senior citizens will be $1,500 for married individuals and $1,850 for singles and heads of household in 2023.
Other 2023 Tax Adjustments
Tax brackets will also expand due to inflation adjustments. You can take advantage of this by altering your tax planning strategies now. The IRS will publish the official 2023 inflation-adjusted amounts later this year.
- Estate Tax Exclusion will rise by nearly $1 million to $12,920,000 for individuals ($25,840,000 for married couples).
- Lifetime Gift Tax Exclusion will increase from $16,000 to $17,000.
- Adoption Credit will increase from $14,890 to $15,950.
- Alternative Minimum Tax Exemption will rise from $75,900 to $81,300.
- The Child Tax Credit will revert back to the original $2,000 per qualifying child after seeing an increase for the 2021 tax year. However, the maximum refundable portion of the credit is adjusted for inflation and is expected to be $1,600 in 2023.
Start Planning Now
Keep in mind that these are projections for tax year 2023, beginning January 1, 2023 — this affects the numbers you’ll use to prepare your tax return in 2024. These are not the tax rates and figures that you’ll use to prepare your tax return early next year.
Thankful to sponsor lunch for a great group of Coldwell Banker agents at a recent Lunch & Learn meeting, and to present for a few minutes about the transformative services we provide at Premier Tax & Accounting Services.
Student Loan Forgiveness Application Now Open
The Federal Student Loan Debt Relief application is officially open after a brief beta testing period in which more than 12 million borrowers applied for loan forgiveness. If you qualify, you can submit an application for student loan forgiveness for up to:
- $20,000 for Pell Grant recipients, and
- $10,000 for federal loan holders.
To qualify, you must:
- Have annual income under $125,000 for individuals / $250,000 for married couples in either 2020 or 2021.
- Have a loan balance before June 30, 2022 (new loans disbursed July 1, 2022, or later do not qualify).
Easy to Apply
The site is live for you to complete and submit your application, which takes about 5 minutes. You do not need to log-in, or provide any documentation, and you can apply easily on your desktop, laptop, phone or tablet. You will receive a confirmation email once you submit your information.
The Federal Student Aid office will determine eligibility and contact you if more information is needed. Loan service providers will then notify you when relief has been processed. The website will be open through Dec. 31, 2023. A paper application will be available at a later date.
Expect a Big Bump in Your 2023 Social Security Check
With record high inflation comes an increased cost-of-living adjustment (COLA). And that means if you receive Social Security (or SSI) benefits, you will see an 8.7% increase in 2023, the highest increase in 40 years. The result: The average benefit will increase $146 per month — to $1,827 in 2023 — up from $1,681 in 2022. And that will kick in beginning with your January 2023 benefit check. (Look for a notice from Social Security in early December, or go online to access your information on the Social Security website.)
Keep in mind that Medicare Part B premiums and taxes may influence the size of your benefit checks. The standard Medicare Part B premium will actually be $5.20 lower next year — to $164.90, down from $170.10. Those payments are often deducted directly from Social Security checks.
If you’re still working, then your earnings are still subject to the Social Security tax. For 2023, the maximum amount of earnings subject to the tax will increase to $160,200 from $147,000.