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
Other 2023 Tax Adjustments
- 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.
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- $20,000 for Pell Grant recipients, and
- $10,000 for federal loan holders.
- 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).