Over the past year, Americans have seen many rate hikes, Social Security adjusted for the cost of living and the birth of a $740 Billion Inflation Reduction Act. Amid all the government efforts being made to offset the economic downturn, more relief is still coming from the pipeline.
The IRS confirmed this week that an inflation adjustment will be made for tax year 2023. This adjustment will affect the 62 sections of code presented in revenue procedure 22-38. One big change to note is the 7% increase in the standard deduction. Here’s a breakdown and how this increase will affect your tax bill.
For your financial support for the upcoming tax season, contact your local Financial Advisor to see where you can make the most of your tax bill.
What is the standard deduction?
The standard deduction is a taxable deduction that the IRS allows you to reduce 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 possible tax costs. Tax deductions are allowed from your total taxable income.
Summary of Standard Deduction for 2023
The standard deduction for 2023 will increase by about 7% to $13,850 for individuals and $27,700 for married couples filing jointly. This decision is based solely on calculations by Congress, which is affected by the significant inflation experienced by the government recently.
Normally, tax code allowances are gradually increased, but due to unusually high inflation the adjustments are also significant.
How does the standard deduction increase affect you?
This increase was most welcomed by the average American taxpayer. Since the standard deduction is designed to reduce taxable income, households should see a lower tax bill and get a refund.
Remember that the standard deductible is only best for people who don’t have other expenses to deduct that will add up to more than the standard deductible. These people will get a better price when using itemized deductions. However, the vast majority of taxpayers (almost 90%) choose the standard deduction.
Other tweaks mentioned
While the excitement behind the 7% increase in the standard deductible stole the show, there’s a lot to be excited about from this announcement. More than 60 tax code adjustments were included in the update. Here are a few you may be interested in:
-
Increase Property Tax Exclusions: Raised nearly 1 million dollars
-
Increased lifetime gift tax exclusions: Increase from $16,000 to $17,000
-
Increase adoption credit: Raised from $14,890 to $15,950
-
Alternative minimum tax-free increase: Raised from $75,900 to $81,300
Conclusion
Most taxpayers will find the 7% increase in standard deductions a significant benefit for 2023. But make sure you check both itemized deductions and deductions. criteria 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 using the DIY method to fill out your tax return, you can go through the list of tax deductions and find the deductions that apply to you.
Tips for tax time
-
For help with taxes and other financial questions, consider working with Financial Advisor. Finding a qualified financial advisor is not difficult. SmartAsset’s free tool lets you have up to three financial advisors serving your area, and you can interview your advisors for free to decide which option is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.
-
Another important part of your finances is your housing costs. Using SmartAsset’s mortgage calculator to see what you might owe if you buy a new home.
Image source: © iStock / FREDERICA ABAN, © iStock / Khanchit Khirisutchalual
Post IRS Raises Standard Deduction to 7% – What It Means for You appeared first on SmartAsset Blog.
