Highlights from the 2023 Tax Legislation:
The tax year 2023 adjustments described below generally apply to tax returns that will be filed in 2024. 2023 will call for many tax changes. Keep in mind that a new tax bill can sometime be up to 600 pages or more. We have gathered the highlights of that bill. If you still have questions, please email contact@bpataxes.com.
⦁ Tax brackets have significantly increased for 2023 due to rising inflation. Please review the tax table to see what tax bracket you will fall under. The table below shows the tax bracket/ rate for each income level:
⦁ Standard Deductions: Please review the Standard Reduction Table below:
•Maximum Earned Income Tax Credit Refund allowed is $7,430 for qualifying taxpayers who have three or more qualifying children.
• Maximum Adjusted Gross Income (AGI): EITC amount you can qualify without going over:
Investment income limit: $11,000 or less
• Refunds: After 3 years of stimulus payments and pandemic tax breaks, nearly all of those extra benefits have faded away and tax refunds are likely to shrink as a result. Last day to file for a refund for 2019 is July 17, 2023.
• Standard Deduction: for married couples filing jointly has risen to $27,700. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850, and for Heads of Households, the standard deduction will be $20,800.
• Alternative Minimum Tax exemption: amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300).
• The monthly limitation: for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300.
• Health Flexible Spending: The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610.
• Medical Coverage: Participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650; but not more than $3,950. For self-only coverage, the maximum out-of-pocket expense amount is $5,300. Family coverage, the annual deductible is not less than $5,300; however, the deductible cannot be more than $7,900. Family coverage, the out-of-pocket expense limit is $9,650.
• Foreign Earned Income: exclusion is $120,000.
• Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000.
• Gifts: The annual exclusion for gifts increases to $17,000 for the calendar year.
• Adoptions: maximum credit allowed for adoptions is the amount of qualified adoption expenses up to $15,950.
• IRA: contribution limits are $6,500 for those under age 50, and $7,500 for those over 50. You can make 2023 IRA contributions until the unexpended federal tax deadline.
• Child & Dependent Care Credit: Families can claim up to $3,000 in dependent care expenses for one child/dependent and $6,000 for two children/dependents per year. The credit is worth between 20% and 35% of these expenses, depending on a family’s income.
• Filing Extension: Taxpayers affected by 2022/2023 storms qualify for an extension to October 16, 2023, to file individual and business tax returns and make certain tax payments. This includes: Individuals whose tax returns and payments are due on April 18, 2023.
• Charitable Deductions: The new threshold is 60% of AGI for cash contributions held for over a year, and 30% of AGI for non-cash assets. Standard deduction is now higher to account for inflation, rising to $12,950 for people who file individually and $25,900 for married couples who file joint returns.
• 1099-K Delay: IRS Delays Reporting $600 on 1099-k Forms Until 2024. Before 2022, the requirement for reporting was $20,000 or 200 transactions. But the IRS has delayed the new rule until 2024 to give businesses more time to prepare.