The U.S. Tax Code is always evolving. Every year, attorneys, financial professionals, and taxpayers are compelled to navigate a revised tax filing process. When it comes to adjustments to the Tax Code, knowledge is power. By staying informed about the adjustments being made, you’ll be better positioned to limit your tax liability for the filing year. You’ll also be empowered to make smart choices about your broader financial and tax strategies for the duration of the new fiscal year.
In this article, the trusted financial team at Ferguson Timar discusses some of the most notable tax changes taking effect in 2023. Our certified public accountants are anticipating these changes and can assist you with adjusting your tax and financial strategies accordingly.
The Covid-19 pandemic resulted in a host of temporary changes to the U.S. Tax Code. Now that the impact on the economy from Covid-related challenges has decreased, the Tax Code is once again evolving. A few of the most notable post-Covid-related adjustments to occur in 2023 include:
- Reversion of the maximum Child and Dependent Care Credit from $8,000 in 2021 to $2,100 for the 2022 tax year
- Reversion of the Earned Income Tax Credit (EITC) to $500 from $1,500 in 2021 for eligible taxpayers with no dependent children
- Reversion of the Child Tax Credit (CTC) to $2,000 from $3,600 per dependent in 2021
- A return to “no above-the-line” charitable deductions for taxpayers who choose the standard deduction, which is a shift from the up-to $600 allowance permitted in 2021
These changes will likely result in less significant returns for many taxpayers in 2023.
Inflation and Tax Bracket Adjustments
A rapid rise in inflation has affected virtually every aspect of the U.S. economy over the past year. It is, therefore, not surprising that inflation will affect tax filing as well. Thankfully, though, taxpayers stand to benefit from these inflation-related changes. Unlike most inflation-related news, these adjustments will help, not hurt.
Unfortunately, this relief will not take effect until the 2023 tax year. However, understanding the changes that are coming down the road is important, as they may influence your broader tax and financial strategies for the upcoming fiscal year. Roughly 60 tax provisions are being altered due to inflation for the 2023 tax year. Among these alterations are notable adjustments to standard deductions and tax brackets.
If you opt for the non-itemized standard deduction during the 2023 tax year, you’ll benefit from one of the following increases:
- Single filers: $900 increase to $13,850
- Head of Household filers: $1,400 increase to $20,800
- Married couples filing jointly: $1,800 increase to $27,700
These adjustments represent a roughly seven percent increase in taxpayer standard deductions. Although inflation-related adjustments are made regularly, this spike is unusually significant. Filer income brackets have also been adjusted – although not as significantly – for the benefit of filers across the board.
Additionally, a number of specialty allowances will be adjusted for the 2023 tax year. You may want to keep these adjustments in mind when making financial decisions during the 2023 fiscal year accordingly. New special circumstance tax adjustments will include:
- A $1,000 increase in the annual exclusion for gifts from $16,000 to $17,000
- A $1,060 increase in the maximum tax credit for qualified adoption expenses from $14,890 to $15,950
- An $8,000 increase in the foreign-earned income exclusion from $112,000 to $120,000
- An $860,000 increase in the basic estate tax exclusion for inheritances from $12,060,000 to $12,920,000
Contact a Knowledgeable Orange County CPA to Learn More
Cultivating an informed tax filing strategy can help you to both minimize your overall liability and position you to make savvy financial decisions across the board. Connect with the experienced financial team of CPAs at Ferguson Timar today to learn more about how to set yourself up for financial success in 2023. Our client-focused approach and dedication to detail will help to ensure that you meet your financial goals as efficiently and effectively as you possibly can. We look forward to speaking with you.