Can Inflation Impact your Taxes and other Notable IRS Changes for Tax Year 2023
The recent struggles with inflation began in 2021, on the heels of the Covid pandemic. While persistently high inflation is hardly cheerful news, a set of annual adjustments from the IRS that are tied to an inflation index could provide relief in one unexpected area — taxes.
Last October, the IRS announced the adjustments for the 2023 tax year. As a result, many key provisions — including income thresholds for the federal tax brackets — will increase by about 7% overall to account for the sky-high inflation Americans have seen throughout 2022. This larger-than-usual adjustment could mean many folks may stay in a lower tax bracket; some may even have a lower tax burden than the previous year.
What else will change for tax year 2023? Let’s take a look:
- The IRS exclusion for gifts, which limits how much taxpayers can give to a person without filing a gift tax return on certain gifts, will increase to $17,000 per person in 2023, up $1,000 from 2022.
- Beginning in 2023, estates valued at or below $12.92 million will not be subject to estate tax, up from $12.06 million in 2022.
- Each year, taxpayers can itemize their return or take the standard deduction to lower their taxable income. Starting with the 2023 tax year, the standard deduction will increase by $900 for single filers and those married filing separately, $1,800 for married couples, and $1,400 for heads of household. The standard deduction is also $1,500 higher for those over 65 or blind (up from $1,400 in 2022) and $1,850 higher if also unmarried and not a surviving spouse (up from $1,750 in 2022).
Learn more about other recent updates that may effect you or your business here.