As Councilor, Buchanan & Mitchell recently reported, the Inflation Reduction Act has created deductions for energy-efficient construction especially concerning the Section 179D deduction for commercial buildings and the Section 45L credit for residential homes.
The Inflation Reduction Act has created additional adjustments in 2023 taxpayers should be aware of including to the standard deduction and other provisions. More recently on Friday, October 21, the IRS also announced a generous increase in the 2023 annual contributions to a 401K account. Read below for additional details.
Standard Deduction Adjustments
The standard deduction has been adjusted in 2023 according to the following:
- $27,700 for married couples filing jointly (up $1,800 from 2022)
- $13,850 for single taxpayers and married individuals filing separately (up $900 from 2022)
- $20,800 for heads of households (up $1,400 from 2022)
The marginal tax rate has also been adjusted for the 2023 tax year. Individuals earning more than $578,125 (or $695,750 for married couples filing jointly) is 37%. Additional rates are:
–35% for incomes over $231,250 (or $462,500 for married couples filing jointly)
–32% for incomes over $182,100 (or $364,200 for married couples filing jointly)
–24% for incomes over $95,375 (or $190,750 for married couples filing jointly)
–22% for incomes over $44,725 (or $89,450 for married couples filing jointly)
–12% for incomes over $11,000 (or $22,000 for married couples filing jointly)
–10% for incomes less than $11,000 (or less than $22,000 for married couples filing jointly)
Alternative Minimum Tax
The alternative minimum tax for 2023 will be $81,300 (or $126,500 for joint filers) and will begin to phase out at $578,150 (or $1,156,300 for joint filers).
Earned Income Tax Credits
The earned income tax credit has been increased from $6,935 to $7,430 for qualifying taxpayers with at least three qualifying children.
- Qualified Transportation Fringe: In 2023, the monthly limitation for the qualified transportation fringe benefit (and the monthly limitation for qualified parking expenses) will increase to $300.
- Health Flexible Savings Accounts: In 2023, employee salary reductions for contributions to health flexible savings accounts will increase to $3,050. The maximum carryover amount for cafeteria plans that permit carrying over unused amounts will increase to $610.
- Medical Savings Accounts: Self-covering HSA participants must have an annual deductible between $2,650 and $3,950 with a maximum out-of-pocket expense of $5,300. Accounts that cover families must have an annual deductible between $5,300 and $7,900 with an out-of-pocket expense limit of $9,650.
- Foreign Earned Income Exclusion: This exclusion will be $120,00 in 2023 (up from $112,000 in 2022).
- Exclusion from Estate Tax – Estates of individuals who pass away in 2023 will have a basic exclusion amount of $12,920,000 (increased from 12,060,000 in 2022).
- Gift Tax Exclusion: in 2023, the annual gift exclusion will be $17,000 (an increase from $16,000 in 2022).
Some items previously indexed for inflation are not included by the current round of adjustments including:
• The personal exemption remains at 0.
• There remains, as in the past few years, no limitation on itemized deductions. The limit was eliminated by the Tax Cuts and Jobs Act.
A Big Jump in 401K Contributions in 2023 (Including Catch-Up Contributions)
On Friday, October 21, the IRS made an additional announcement regrading annual contributions to 401K accounts in 2023. The limit will jump to $22,500, up from $20,500 in 2022. For individuals over 50 interested in making additional catch-up contributions, the amount has increased from $6,000 to $7,500.
Contact Joseph F. Wilson, tax partner at CBM, with any questions via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.