Tax season can be a source of stress for many individuals, and this year's concerns are amplified by the impact of inflation on all sectors of American society. Acknowledging the financial strain caused by inflation, the IRS has implemented several modifications aimed at reducing the tax burden for taxpayers.
Tax Brackets and Deductions
To prevent "bracket creep," where inflation pushes taxpayers into higher tax brackets without an actual increase in income, the IRS has raised the tax brackets and standard deductions. For instance, the maximum income for the 22% bracket has been increased to $190,750 for married couples filing jointly, compared to the previous limit of $178,150.
Likewise, married couples filing jointly will experience an $1,800 increase in their standard deduction, bringing it to $27,700. This adjustment could potentially place some families in a lower tax bracket for the year 2023.
Increased Retirement Contributions
Depending on an individual's income, the IRS has raised the maximum contribution limits for retirement accounts. For 401(k), 403(b), and most 457 plans, taxpayers can now contribute up to $22,500, which is $2,000 more than the previous tax season.
In the case of IRAs, the limit has been raised to $6,500 from $6,000. However, the additional catch-up contribution of $1,000 for individuals over the age of 50 remains the same.
Additional Adjustments
The IRS has implemented other changes as well. Individuals claiming mileage deductions can now claim an extra 3 cents per mile driven. Moreover, those with Flexible Spending Accounts (FSA) can now contribute up to $3,050, which is an increase of $200 compared to the previous limit.
Both the Alternative Minimum Tax (AMT) and the Earned Income Tax Credit (EITC) have also undergone adjustments. For taxpayers with three or more qualifying children, the EITC has been raised to $7,430. As for the AMT, it now starts at $81,300 for single filers and $126,500 for married couples filing jointly. The phase-out thresholds for the AMT are now set at $578,150 for single filers and $1,156,300 for married couples.
Additionally, the IRS has made changes to the capital gains tax. Married couples filing jointly can now realize up to $89,250 in gains before being subject to taxation, an increase of just under $6,000.
How Will These Changes Impact Me?
While certain changes, such as the adjustments to tax brackets, occur automatically, others may require a shift in your tax planning approach. To fully understand how the recent modifications by the IRS can be advantageous in minimizing your tax liability, it is advisable to seek the assistance of professionals like Assertive Tax Solutions. They can provide personalized guidance on how you can benefit from these changes and navigate the tax season successfully.
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