Taxes

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IRS releases 2023 tax rates and inflation adjustments

The IRS released Rev. Proc. 2022-38 on October 18, 2022, with changes to income tax brackets, the standard deduction, estate tax exemptions, capital gains rates, qualified business income (QBI) deduction, and long-term care deductions including per diem for 2023. While the Inflation Reduction Act of 2022 helped lower Medicare Part B premiums, it had minimal impact on the upcoming changes. Here are the highlights of the revenue procedure showing those inflation adjustments:

Tax Rates

Although the top tax bracket will remain at 37% in accordance with the Tax Cuts and Jobs Act of 2017 until January 1, 2026, the income amounts have increased as follows:

  • 37%: single individuals with incomes greater than $578,125 ($693,750 for married couples filing jointly)
  • 35%: single individuals with incomes greater than $231,250 ($462,500 for married couples filing jointly)
  • 32%: single individuals with incomes greater than $182,100 ($364,200 for married couples filing jointly)
  • 24%: single individuals with incomes greater than $95,375 ($190,750 for married couples filing jointly)
  • 22%: single individuals with incomes greater than $44,725 ($89,450 for married couples filing jointly)
  • 12%: single individuals with incomes greater than $11,000 ($22,000 for married couples filing jointly)
  • 10%: individuals with incomes less than $11,000 ($22,000 for married couples filing jointly)

Maximum Capital Gains Rates

The maximum capital gains tax rates will increase in 2023 as follows:

  • Married couples filing jointly: Maximum 0% rate up to $89,250 (maximum 15% rate up to $553,850)
  • Married individuals filing separately: Maximum 0% rate up to $44,625 (maximum 15% rate up to $276,900)
  • Head of household: Maximum 0% rate up to $59,750 (maximum 15% rate up to $523,050)
  • Single individuals: Maximum 0% rate up to $44,625 (maximum 15% rate up to $492,300)
  • Estates and Trusts: Maximum 0% rate up to $3,000 (maximum 15% rate up to $14,650)

Standard Deduction

The standard deduction will increase in 2023 as follows:

  • Married couples filing jointly: $27,700 ($25,900 in 2022)
  • Head of household: $20,800 ($19,400 in 2022)
  • Married individuals filing separately: $13,850 ($12,950 in 2022)
  • Single individuals: $13,850 ($12,950 in 2022)

Also, both the personal exemption and Pease limitation for item deductions remain suspended under the Tax Cuts and Jobs Act of 2017 until January 1, 2026.

Alternative Minimum Tax

The alternative minimum tax will increase in 2023 as follows:

  • Married couples filing jointly: $126,500 (begins to phase out at $1,156,300 and completely phased out at $1,662,300)
  • Single individuals: $81,300 (begins to phase out at $578,150 and completely phased out at $903,350)
  • Married individuals filing separately: $63,250 (begins to phase out at $578,150 and completely phased out at $831,150)
  • Estates and Trusts: $28,400 (begins to phase out at $94,600 and completely phased out at $208,200)

Qualified Business Income Deduction

The qualified business income (QBI) threshold and phase-in range amounts under § 199A–known as Section 199A–will increase in 2023 as follows:

  • Married couples filing jointly: $364,200 (phase-in range amount at $464,200)
  • Married individuals filing separately: $182,100 (phase-in range amount at $232,100)
  • Single individuals: $182,100 (phase-in range amount at $232,100)

Estate, Gift, and Generation-Skipping Transfer Tax Exemption

The estate tax lifetime exemption amount for transfers in 2023 will be $12.92 million per person (an increase from $12.06 million in 2022). Married couples will be able to exempt up to $25.84 million without incurring federal estate tax, which includes portability.

The IRS released REG–118913–21 on April 26, 2022, in response to the previously published clawback decision Treasury Decision 9884 on November 26, 2019. If it becomes final, the proposed regulations will limit the anti-clawback rule and address situations where an estate could be taxed on gifts made after 2017.

Gift Tax Annual Exclusion

The annual exclusion for gifts in 2023 has increased to $17,000 ($16,000 in 2022).

Long-Term Care Deduction

The age-based limitations (attained age before the end of the year) on premiums will increase in 2023 as follows:

  • 40 or less: $480 ($450 in 2022)
  • More than 40 but not more than 50: $890 ($850 in 2022)
  • More than 50 but not more than 60: $1,790 ($1,690 in 2022)
  • More than 60 but not more than 70: $4,770 ($4,510 in 2022)
  • More than 70: $5,960 ($5,640 in 2022)

Long-Term Care “Per Diem”

The per-day limitation under § 7702B(d)(4)–known as Section 7702(B)–on indemnity style policies including long-term care insurance, life insurance policies with a long-term care rider, or long-term care annuity will increase in 2023 to $420 ($390 per day in 2022). Reimbursement policies are not subject to per diem limitations as expenses are paid as incurred.

About the Author

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Carlos Dias Jr.

Carlos Dias Jr. is a financial advisor, public speaker, and president of Dias Wealth, LLC. Carlos is a nationally syndicated contributor for Kiplinger and has contributed, been featured, or quoted in several publications including Forbes, MarketWatch, Bloomberg, CNBC, The Wall Street Journal, U.S. News & World Report, USA Today, and others. He’s also been interviewed on various radio and television stations. Carlos is multilingual, fluent in both Portuguese and Spanish.

Taxes

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