IRS publishes deductions and limits for next tax season: inflation hit numbers hard
The Internal Revenue Service (IRS) has issued dozens of inflation adjustments affecting personal income tax amounts, deductions and credits for 2023. As you might have guessed, the highest inflation in 40 years has led to significant jumps in these indicators, according to Forbes.
Deductions
Consider the standard deductions, which now (instead of itemized deductions) are claimed by more than 85% of taxpayers. For a married couple filing a joint tax return, this deduction will rise to $27 in 700 from $2023 in 25; for singles and couples filing separate returns, it will rise to $900 from $2022; for the head of household (single adult with dependents), the standard deduction will rise to $13 from $850.
The additional standard deduction for those aged 65 and over will increase to $1 per person from $500 in 1; if that person is single, the additional deduction will be $400 in 2022, compared to $1.
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Tax categories
Meanwhile, individual tax brackets for ordinary income as well as capital gains will jump 2023% in 7. So, for example, the lowest income tax rate of 10% would cover the first $22 of taxable income of a married couple who filed a joint return (in 000, this amount was $2022); and the highest rate of 20% would be for taxable income in excess of $550 (up from $37 in 693).
Individual federal tax brackets have been automatically indexed for inflation since 1985. The point of the adjustments is to make sure inflation doesn't artificially push people into higher tax brackets. Those whose income hasn't increased with inflation may end up paying lower taxes in 2023 than they did in 2022—in other words, they could get a tax cut that makes up some of what they lost.
Dividends
With regard to the tax rate on qualified stock dividends and long-term capital gains (that is, capital gains held for more than a year), a married couple will not pay tax until their income (including this gain) exceeds $89, compared to from $250 in 83. Above this, the tax rate for growth is 350%. 20% taxes will be paid by those couples whose dividend income exceeds $553. For those filing individual returns, 15% taxes will be required on dividend income above $44; 625% - if income exceeds $20.
Tax credits and credits
Several key loans are also adjusted for inflation. For example, the maximum earned income tax credit for eligible taxpayers with three or more children will be $7 in 430 (compared to $2023 in 6). The loan, which is designed to help poor working families, increases with earned income, and then begins to gradually decrease.
You can see all the adjustments in IRS document #22-38 - here. It's a 28-page document covering everything from an adoption loan to penalties for late filing of certain returns.
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Inflation also means that wealthy people will be able to pass on much more to their heirs without paying taxes in life or death. One key change to giving: You can give anyone (and any number of people) $17 worth of gifts in 000, up from $2023 in 16, without worrying about paying gift tax.
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