By Mike Valenti, CPA, CFP®, Director of Tax Planning
It’s that time of year again! W-2s, 1099s and mortgage statements have been to hit your mailbox: a daily reminder that it is, once again, Tax Season.
Overall, it was a relatively quiet year on the tax front. (Although Congress isn’t done yet! More on that later.) Inflation has been a hot topic the past few years. While no one likes paying more for groceries, utilities, and housing, there is a silver lining: IRS thresholds that are indexed for inflation have seen substantial increases.
So where will most Americans see changes on their tax return this year?
1. Standard Deductions Got a Boost
As is normally the case, the standard deduction has been updated for inflation. For single filers, it’s now $13,800, up from $12,550 in 2022. If you’re filing jointly, you’re looking at a standard deduction of $27,600, compared to $25,100 last year. So, for many of us, that means a bit more money staying in our pockets.
2. Tax Brackets Receive Their Annual Raise
The tax brackets have also been adjusted for inflation. The top tax rate remains at 37%, but the income thresholds have increased about 7%. This is good news for those that received cost-of-living adjustments and raises last year.
3. Child Tax Credit Resets… for Now
After the COVID-era increase and advances of the Child Tax Credit, the credit is back down to a max $2,000 per child (subject to income limitations), and refundable up to $1,600. As of publishing, Congress is discussing expanding the child tax credit, including a retroactive change to the 2023 credit. The House passed H.R. 7024 – Tax Relief for American Families and Workers Act of 2024 on January 31, 2024, with strong bipartisan support. Assuming the Senate picks up where the House left off, the earliest we can expect the changes to be enacted in law is mid-March 2024.
4. IRA Contribution Limitations Also See an Increase in 2023
Those making IRA contributions can save a little more this year. The 2023 IRA contribution limitation is $6,500 plus a $1,000 catchup contribution for those over 50. Those with SEP IRAs may see a contribution maximum up to $66,000.
5. Health Savings Account (HSA) Limits Bumped Up
Health Savings Accounts bear the unique title of being triple-tax-advantaged (tax-deductible contributions, tax-free growth, and tax-free qualified distributions), and are a popular savings vehicle for those with high deductible insurance plans. For individual plans, the limit is now $3,650, and for family plans, it’s $7,300. Plus, if you’re over 55, you can contribute an extra $1,000 as a catch-up contribution.
6. SALT Deductions: Still a Salty Subject
The State and Local Tax (SALT) deduction is still capped at $10,000 for both single and joint filers. This doesn’t directly impact the many Americans who take the standard deduction, but for the those who do (or otherwise would) itemize, the SALT deduction continues to disappoint.
It is worth noting that lawmakers continue to raise this subject and issue legislation. We may yet see some relief, but thus far, such efforts have yet to bear fruit.
7. Going Green to Save Some Green
The Inflation Reduction Act extended and expanded a number of energy credits for 2023 and beyond, including the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Clean Vehicle Credit.
More Changes to Come?
Lastly – keep an eye on Capitol Hill. As mentioned above, there is strong bipartisan support for extensions of certain tax breaks that have lapsed of the past few years. If passed as proposed, your 2023 taxes may be impacted retroactively.
Please consult with your tax professional! They are tracking these changes and will be able to provide guidance for your specific situation. As taxes become more complicated, having a trust tax professional in your corner can cut your taxes in the long run.
Mike Valenti is not registered with Cetera Advisor Networks LLC. This blog is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. 02110301-0224-C
Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
The information on Health Savings Accounts (HSAs) provided herein is general in nature. It is not intended, nor should it be construed, as legal or tax advice. Because the administration of an HSA is a taxpayer responsibility, you are strongly encouraged to consult your tax advisor before opening an HSA. You are also encouraged to review information available from the Internal Revenue Service (IRS) for taxpayers, which can be found on the IRS website at IRS.gov. You can find IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, and IRS Publication 502, Medical and Dental Expenses, online, or you can call the IRS to request a copy of each at (800) 829-3676.
