Related Articles
Tax Season 2023 Updates
Tax season doesn’t have to be a headache. Catch up on some of the major changes for tax season 2023 and find out how they could impact your returns.
Everyone’s favorite season has arrived – tax season! Okay, maybe it’s not everyone’s favorite, but it does come around every year. As you gather your documents, here’s a preview of just a few federal tax changes this year.
Quick note: the information below is for federal income tax returns. Each state has their own rules and regulations around income tax, and some states don’t have any income tax.
This information is not tax or investment advice. You should consult with a tax advisor and/or a qualified investment professional for advice specific to your particular circumstances.
Key Takeaways
2023 tax returns are due April 15, 2024. The IRS has raised the standard deduction for 2023 tax returns.
For tax filing season, collect your income papers, retirement details, and forms showing any interest or dividend money you received.
The IRS changes for 2023 also include adjustments to the standard income tax brackets and income brackets for capital gains taxes.
Tax Year 2023 - The Basics
You’ve probably been filing your taxes for years, but let’s go through the basics super quick! Tax Day for individuals is April 15, 2024, by midnight.¹ This is also the deadline to request an extension for your tax return.
An extension gives you until October 15, 2024,² to file your taxes, however you still need to pay your estimated tax bill if you expect to owe money to avoid any interest or penalties. Filing an extension only gives you additional time to complete your tax return.
Additionally, if you live in an area that was impacted by a natural disaster, your deadline may be different than the ones above. Check the IRS’ website to see if you live in an area that is covered by a disaster declaration.
This year is no different than others when it comes to personal information. You need:
Your Social Security Number (SSN) or tax ID number and date of birth
Your spouse’s SSN or tax ID number and their date of birth (if filing with your spouse)
The date of birth and SSN of your dependent(s) (if you have a dependent. And no, your puppy doesn’t count!)
You also need to have your income documents on hand to file your tax returns, including:
Employment income information (think W-2s, 1099s)
Retirement information (1099-R, Social Security income, and traditional IRA contributions)
Interest/dividend income (1099-INT, 1099-OID, 1099-DIV, 1099-MISC)
Depending on your specific financial situation, you may need other documents. Check with a tax specialist if you have more complex finances.
2023 Tax Changes
Since taxes in the United States are due in April, the dates may be a little confusing. Even though it’s currently 2024, the changes we’re talking about apply to your 2023 tax returns, the ones due by April 15, 2024.
Higher Standard Deductions
Quick reminder – the standard deduction is a specific amount you’re able to deduct from your income when filing taxes if you choose not to itemize your deductions. The standard deductions look like this:
2023 Standard Deductions³
Filing status | 2023 Standard Deduction |
|---|---|
Single or Married Filing Separately | $13,850 |
Married Filing Jointly or Qualifying Widow(er) | $27,700 |
Head of Household | $20,800 |
* Remember, the year in this table is the tax years. You use the 2023 deduction for taxes you file in 2024.
There were also small increases to the additional standard deduction for taxpayers over 65 or who are blind:⁴
2023 Additional Standard Deductions
Filing status | 2023 Additional Deduction |
|---|---|
Single or Head of Household | $1,850 |
Married taxpayers or Qualifying Widow(er) | $1,500 |
According to the IRS, almost 90% of filers took the standard deduction for tax year 2019.⁵ Remember, if you take the standard deduction, you can’t itemize your deductions. Itemized deductions include things like certain medical expenses, mortgage interest, and sales taxes, among others. A tax professional may help you determine which path is the best for you.
Updated Tax brackets
There are still seven tax rates for federal taxes, but the income ranges have changed slightly for 2023.⁶
2023 Tax Rates
Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Taxable Income (Married Filing Separately) | Head of Household |
|---|---|---|---|---|
10% | $0 – $11,000 | $0 – $22,000 | $0 – $11,000 | $0 – $15,700 |
12% | $11,000 – $44,725 | $22,000 – $89,450 | $11,000 – $44,725 | $15,700 – $59,850 |
22% | $44,725 – $95,375 | $89,450 – $190,750 | $44,725 – $95,375 | $59,850 – $95,350 |
24% | $95,375 – $182,100 | $190,750 – $364,200 | $95,375 – $182,100 | $95,350 – $182,100 |
32% | $182,100 – $231,250 | $364,200 – $462,500 | $182,100 – $231,250 | $182,100 – $231,250 |
35% | $231,250 – $578,125 | $462,500 – $693,750 | $231,250 – $346,875 | $231,250 – $578,100 |
37% | $578,125 and over | $693,750 and over | $346,875 and over | $578,100 and over |
Taxable income is the net of things like wages, tips, salaries, employer bonuses, and interest earned on certain accounts minus any adjustments and deductions that lower your tax liability, such as the standard deduction or student loan interest.
Remember that the federal tax system uses a progressive tax system. This means that you owe different amounts based on how much money you make.
For example, if you’re a single filer who made $180,000 before taxes in 2023 and take the standard deduction, your taxable income would be $166,150. This assumes you don’t have any other adjustments to your income, like 401(k) contributions. Your federal tax obligation on $166,150 would be approximately $33,276. The breakdown for this example looks like this:
Tax Rate | Income Range | Taxable Income per Bracket | Tax Due per Bracket |
|---|---|---|---|
10% | $0 – $11,000 | $11,000 | 10% * $11,000 = $1,100 |
12% | $11,000 – $44,725 | $33,725 ($44,725 - $11,000) | 12% * $33,725 = $4,047 |
22% | $44,725 – $95,375 | $50,650 ($95,375 - $44,725) | 22% * $50,650 = $11,143 |
24% | $95,375 – $166,150 | $70,775 ($166,150 - $95,375) | 24% * $70,775 = $16,986 |
Now you add the taxes due for each bracket together:
$1,100 + $4,047 + $11,143 + $16,986= $33,276.
And that’s how the progressive tax brackets work!
Capital Gains Income Brackets
Do you have investments, such as stocks, other than those in your retirement plan? If you do, you may owe taxes on them. Your capital gains taxes depend on four primary things:
How much the value of your investments has increased
How long you’ve held your investments
Your overall income from all sources
The types of investments you hold
If you’ve held your investment for less than a year, you pay a short-term capital gains tax at the federal level. Short-term capital gains are taxed at your regular income tax rate for the year. If you’ve held the investment longer than a year, you pay a long-term capital gains tax, but the rate is often lower than your regular income tax rate.
The income ranges in the following tables refer to your Adjusted Gross Income (AGI). Your AGI is the total of your gross income, investment income, capital gains, retirement income, and other things. It also includes deductions, such as retirement plan contributions and capital losses.
These taxes are levied only against the income you earn from your long-term capital gains, but your AGI determines your tax rate on those gains. For example, if your AGI is $150,000 and you received $10,000 in long-term capital gains income, you would owe 15% of that $10,000 in taxes.
As always, it’s important to discuss your investments with a tax professional when filing your returns.
2023 Long-Term Capital Gains Income Brackets7
Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
Single | Up to $44,625 | $44,626 – $492,300 | Over $492,300 |
Married filing jointly | Up to $89,250 | $89,251 – $553,850 | Over $553,850 |
Married filing separately | Up to $44,625 | $44,626 – $276,900 | Over $276,900 |
Head of household | Up to $59,750 | $59,751 – $523,050 | Over $523,050 |
* These are the income brackets for taxes due in April 2024
Final Thoughts
We know that taxes aren’t the most fun part of spring, but they are important. Having your ducks in a row could make the process significantly smoother.
It’s also important to pay attention to the changes each year because they could help you make smart financial decisions that may help you in both the near and long term. As always, if you have questions about your specific tax situation, consult a tax expert.