A Quick Guide to the New Tax Limits for 2023
This year, the IRS passed down a number of updates to the federal tax code. Here’s what to know before filing.
Inflation is the 800-pound gorilla in any room: You can’t ignore it, and most of the time, it seems to do what it wants. Even the Internal Revenue Service is subject to inflationary pressures, for better or for worse. New guidelines for the federal tax code released in October adjusted limits for more than 60 tax provisions over a wide range of applications, to begin implementation in tax year 2023.
Whether you’re a small business owner, a joint filer or simply the charitable type, here’s what you’ll want to know as you plan your spending and saving for the new year.
• Retire happier: Your contribution limit to your 401(k) just jumped $2,000, for an annual total limit of $22,500. If you are over age 50, you can contribute and additional $7,500 as a catch-up contribution. The IRS has been indexing this limit to inflation since 2007, and this marks the biggest dollar increase in that provision since then. Meanwhile, if you have a Traditional IRA or a Roth IRA, the cap has increased nearly 10 percent, to $6,500 and if you are over age 50, you can still contribute an additional $1,000 as a catch-up contribution.
• Higher standards: The standard deduction has bumped up by $900 for individuals (to $13,850) and $1,800 for married couples filing jointly (to $27,700). Heads of household get a $1,400 bump, for a standard deduction of $20,800. The IRS has also adjusted its tax brackets upward slightly, so check in with your accountant if you’ve previously been on the cusp.
• Fund your favorites: Cash gifts to individuals will be tax-free up to $17,000, a single-year bump of $1,000.
• Changes in deductions: For tax year 2023, there are small increases in claimable deductions for parking and transportation to and from work. Limits have also increased in employee salary reductions for contributions to health flexible spending arrangements ($3,050).
• Changes in mileage rates: For tax year 2023, the standard mileage rate is 62.5 cents per mile for business travel, 22 cents per mile for medical and moving purposes and 14 cents per mile for charitable travel.
At SBF, we’ve got plenty of experts on call to help you deal with inflationary pressures to your personal and business accounts. Whether you want to talk to us about being smart about cutting costs, getting the most from your retirement accounts or evaluating the landscape to determine best practices, we’d love to connect and help make your money work best for you. As for filing tax year 2022, we’re already gearing up to make your tax season a great experience all around.
