With the holiday season behind us, it’s time to look forward to everyone’s other favorite season…tax season, which has experienced some changes in 2023.

Our newly updated, proprietary guide called Numbers Unlimited is a great place to start as you embark on your yearly tax planning.

Below is a brief recap of some main changes taxpayers should keep in mind.

Tax Bracket Changes for 2023

With inflation reaching 40-year highs, the IRS adjusted tax brackets for 2023 by the largest margin ever since automatic inflationary adjustments began in 1985.

The purpose of providing inflationary adjustments is an attempt by the Internal Revenue Service (IRS) to limit the impact of “bracket creep.” This means households in 2023 can earn more income without being subject to a higher tax bracket.

To see the thresholds for each bracket in 2022 vs. 2023 and where you can expect to land, compare the tables below:

2022 Tax Brackets

2023 Tax Brackets

Bigger Standard Deduction In 2023

Tax brackets are not the only inflation-adjusted changes the IRS made in 2023. In fact, the IRS updated roughly 60 other provisions, including changes to standard deductions. As such, households can expect a larger standard deduction for 2023.

  • The standard deduction for single taxpayers and married individuals filing separately is now $13,850, up $900 from 2022’s $12,950 standard deduction.
  • For married couples filing jointly, the standard deduction is now $27,700, up $1,800 from 2022’s $25,900.
  • For heads of households, the 2023 standard deduction is now $20,800, up $1,400 from 2022’s $19,400.

Retirement Limit Increases for 2023

Retirement plan contributions are also up for 2023. Americans can contribute up to $22,500 into 401(k), 403(b), and 457 plans, up from $20,500 in 2022. Catch-up contributions available to 401(k) and 403(b) plan participants over the age of 50 increased to $7,500, up $1,000 from 2022.

For those participating in workplace SIMPLE IRA plans, contribution limits rose to $15,500, up $1,500 from 2022. Catch-up contributions available to SIMPLE plan participants over the age of 50 increased to $3,500.

Meanwhile, the 2023 limit on annual contributions to an IRA or Roth IRA increased to $6,500, up from $6,000 in 2022. The catch-up contribution of $1,000 for those over 50 years of age remains the same, since it is not subject to annual inflation adjustment by the IRS.

Estate Tax Exclusion for 2023

Those looking to manage their federal estate tax exposure received a little more breathing room as estates of decedents who die during 2023 have a basic exclusion amount of $12.92 million, up from $12.06 million for estates of decedents who died in 2022.

The annual exclusion for gifts increases to $17,000 for 2023, a $1,000 increase from 2022.

The annual gift tax exclusion is the amount you can give to someone else without triggering the need to file Form 709, a form used to report transfers subject to federal gift tax and/or generational-skipping tax.

Any gifts above the exclusion generally eat into one’s federal estate tax exemption unless you qualify for strategic legal loopholes.

Tips for Planning Your 2023 Taxes

  • Review Federal Withholding

In 2020, the IRS overhauled Form W-4, removing withholding allowances to help households and individuals more accurately withhold federal income tax from their paychecks. This new form, along with annual inflation adjustments to tax withholding by the IRS, determines how much money employers withhold from employee wages for federal taxes. 

If you haven’t already reviewed your withholding elections in light of the updated Form W-4, it’s worth a review to help avoid any unnecessary over or underpayments on your 2023 taxes.

  • Adjust Employer Retirement Plan Contributions

The inflation-adjusted maximums on retirement plans update automatically, but it’s the responsibility of the plan participant to adjust their contribution rates. If you were making maximum contributions to retirement accounts that have inflation-adjusted limits, be sure to adjust your contributions/payroll elections accordingly.

  • Charitable deduction strategies

With the elimination of personal exemptions in the Tax Cuts and Jobs Act of 2017, combined with higher-than-normal inflation adjustments over the past two years, many Americans no longer itemize. Once-deductible charitable donations are becoming increasingly difficult to deduct due to higher standard deduction thresholds. However, staying proactive, working with your financial advisor, and utilizing various strategies such as bunching, donating highly appreciated securities, and taking advantage of Qualified Charitable Distributions (QCD’s) are some ways to still make a generous impact and receive a tax benefit for doing so.

Download 2023 Numbers Unlimited

For a comprehensive list of 2023 tax number updates to assist in planning for 2023, download our 2023 Numbers Unlimited. Fill out the form below, and we’ll send it to your inbox.

Justin Gross
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