In the past year Americans have seen multiple interest rate hikes, a Social Security cost of living adjustment and the introduction of a $740 Billion inflation reduction act. Amid all the government effort being put forth to compensate for the economic downturn, there is still more relief coming through the pipeline.
The IRS confirmed this week that inflation adjustments would be made for the 2023 tax year. This adjustment will affect 62 code sections laid out in revenue procedure 22-38. One major change to be aware of a 7% standard deduction increase. Here’s the breakdown and how this boost will affect your tax bill.
SPONSORED: Find a Qualified Financial Advisor
For assistance with your finances for the upcoming tax season contact a local financial advisor to see where you can make the most significant reduction in your tax bill.
------------------
What Is A Standard Deduction?
A standard deduction is a type of taxable deduction that the IRS allows for you to lower your taxable income. The lower your taxable income, the lower your tax bill will be. For both individuals and business owners, the goal is to have the lowest tax cost possible. Tax deductions are allowed subtractions from your overall taxable income.
The 2023 Standard Deduction Summary
The standard deduction for 2023 will rise about 7% to $13,850 for individuals and $27,700 for married couples filing jointly. This decision is based solely on Congress’ calculations which are influenced by the considerable inflation the government has experienced recently.
Normally, tax code allowances are increased incrementally, but because inflation is unusually high, the adjustments are substantial as well.
How A Standard Deduction Increase Affects You
This increase is most welcome by the average American taxpayer. Since the standard deduction is designed to lower taxable income, households should see lower tax bills and for some a tax refund.
Keep in mind that the standard deduction is only best for those who don’t have other expenses to deduct that will add up to more than the standard deduction. These people will fare better using itemized deductions. However, the vast majority of taxpayers (nearly 90%) opt for the standard deduction.
Other Adjustments Mentioned
While the excitement behind the 7% increased standard deduction has stolen the show, there is plenty more to be happy about from the announcement. There were 60+ tax code adjustments included in the update. Here are a few you may be interested in:
Estate Tax Exclusion Increase: Rose by nearly $1 Million
Lifetime Gift Tax Exclusion Increase: Rose from $16,000 to $17,000
Adoption Credit Increase: Rose from $14,890 to $15,950
Alternative Minimum Tax Exemption Increase: Rose from $75,900 to $81,300
Bottom Line
Most taxpayers will find the 7% increase in standard deductions a substantial benefit for 2023. But be sure you check both itemized and standard deductions to determine which will serve you better. Remember The IRS provides a list of all tax credits and deductions for individuals and businesses. If you’re taking the DIY approach to filling out your tax returns, you can go through the tax deductions list and find the ones that apply to you.