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When comparing tax year 2022 with 2023, there has been a significant adjustment in federal income tax brackets, according to experts.
Although the rates haven't changed, there has been a roughly 7% increase between the brackets, increasing the amount of taxable income you can receive in each bracket. You calculate your taxable income by subtracting the greater of your standard or itemized deductions from your adjusted gross income.
“This was a larger increase than usual,” Kyle Pomerleau, a senior fellow and federal tax expert at the American Enterprise Institute, previously told CNBC. “This is because inflation has been higher than usual.”
Inflation also boosted the standard deduction for 2023, which reduces your taxable income but makes it harder to claim itemized tax deductions for charitable donations or medical expenses.
For 2023, the standard deduction rises to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850 for 2023, up from $12,950.
Enacted through the Tax Cuts and Jobs Act of 2017, the higher standard deduction is set to expire in 2026, along with lower tax rates. Some filers may have tax planning opportunities in the meantime, such as accelerating income or making Roth individual retirement account conversions, said CFP Nicholas Gertsema, CEO and wealth advisor at Gertsema Wealth Advisors in St. Joseph, Missouri.
The IRS in November delayed the 2023 reporting change for business payments made via apps like PayPal or Venmo.
Before the change, a single payment of $600 would have triggered Form 1099-K, which reports business payments to the IRS.
Referring to 2023 as a “transition year,” the IRS said 2023 would have the old limit of more than 200 transactions with a total value of more than $20,000.
However, business income is still taxable, warns Tommy Lucas, an Orlando, Florida-based CFP and registered agent at Moisand Fitzgerald Tamayo. “If you want to follow the law, you have to [have] “He still has to report it, even if a third party doesn't.”
If you buy a car in 2023 or make energy improvements to your home, you may qualify for tax credits, according to the IRS.
The clean vehicle tax credit caps it at $7,500, while qualifying green home improvements can be worth thousands more.
With more complex tax breaks, it's crucial to “get your ducks in a row” before meeting with a tax preparer, Jastrem said.
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