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Tax Season 2023 Updates
Tax season doesn’t have to be a headache. Catch up on some of the major changes for tax season 2022 and find out how they could impact your returns.
It’s everyone’s favorite season – 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.
Key Points:
2022 tax returns are due April 18, 2023. The IRS has raised the standard deduction for 2022 and 2023 tax returns.
Taxpayers can take advantage of higher contribution limits for retirement accounts, including 401(k)s and IRAs, as well as a higher gifting limit.
The IRS changes for 2022 also include adjustments to the standard income tax brackets and income brackets for capital gains taxes.
Quick note: the information below is for federal tax returns. Each state has their own rules and regulations around income tax, and some states don’t have any income tax.
Tax Season 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 18, 2023, by midnight, not April 15 like most years due to the weekend. This is also the deadline to request an extension for your tax return.
An extension gives you until October 16, 2023, to file your taxes, however you will 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, you may have until October 16, 2023. Check the IRS’ website to see if you live in an area that is covered by a disaster declaration.
In terms of personal information, this year is no different than others. 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)
Depending on your specific financial situation, you may need other documents. Check with a tax specialist if you have more complex finances.
2022 Tax Changes
Since taxes in the United States are due in April, the dates can be a little confusing. Even though it’s currently 2023, the changes we’re going to talk about in this section apply to tax changes for 2022 tax returns, the ones you’re filing by April 18, 2023.
Higher Standard Deductions
Quick reminder – the standard deduction is a specific amount you can deduct from your income when filing taxes if you choose not to itemize your deductions. The standard deductions look like this:
2022 and 2023 Standard Deductions¹˒²
Filing status | 2022 Standard Deduction | 2023 Standard Deduction |
|---|---|---|
Single or Married Filing Separately | $12,950 | $13,850 |
Married Filing Jointly or Qualifying Widow(er) | $25,900 | $27,700 |
Head of Household | $19,400 | $20,800 |
* Remember, the years in this table are the tax years. You use the 2022 deduction for taxes you file in 2023, and 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:³˒⁴
2022 and 2023 Additional Standard Deductions
Filing status | 2022 Additional Deduction | 2023 Additional Deduction |
|---|---|---|
Single or Head of Household | $1,750 | $1,850 |
Married taxpayers or Qualifying Widow(er) | $1,400 | $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 can 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 2022.
2022 Tax Rates
Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Taxable Income (Married Filing Separately) | Head of Household |
|---|---|---|---|---|
10% | $0 – $10,275 | $0 – $20,550 | $0 – $10,275 | $0 – $14,650 |
12% | $10,276 – $41,775 | $20,551 – $83,550 | $10,276 – $41,775 | $14,651 – $55,900 |
22% | $41,776 – $89,075 | $83,551 – $178,150 | $41,776 – $89,075 | $55,901 – $89,050 |
24% | $89,076 – $170,050 | $178,151 – $340,100 | $89,076 – $170,050 | $89,051, – $170,050 |
32% | $170,051 – $215,950 | $340,101 – $431,900 | $170,051 – $215,950 | $170,051 – $215,950 |
35% | $215,951 – $539,900 | $431,901 – $647,850 | $215,951 – $323,925 | $215,951 – $539,900 |
37% | $539,901 and over | $647,851 and over | $323,926 and over | $539,901 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 2022 and take the standard deduction, your taxable income would be $167,050. This assumes you don’t have any other adjustments to your income, like 401(k) contributions. Your federal tax obligation on $167,050 would be approximately $33,928. The breakdown for this example looks like this:
Tax Rate | Income Range | Taxable Income per Bracket | Tax Due per Bracket |
|---|---|---|---|
10% | $0 – $10,275 | $10,275 | 10% * $10,275 = $1,027.50 |
12% | $10,276 – $41,775 | $31,499 ($41,775 - $10,276) | 12% * $31,499 = $3,779.88 |
22% | $41,776 – $89,075 | $47,299 ($89,075 - $41,776) | 22% * $47,299 = $10,405.78 |
24% | $89,076 – $167,050 | $79,974 ($167,050 - $89,076) | 24% * $79,974 = $18,714.76 |
Now you add the taxes due for each bracket together:
$1,027.50 + $3,779.88 + $10,405.78 + $18,714.76 = $33,927.92.
And that’s how the progressive tax brackets work!
Changes to Make for Tax Season 2023
You found all the papers, filed all the forms, and found out if you got a refund or owed taxes. But before you pop the champagne to celebrate (or lament) finishing your 2022 taxes, there are a few things to know for your 2023 taxes. Let’s take a look.
Pump up the (Retirement) Party
That’s right, the IRS has increased the contribution limits for 401(k)s and IRAs!⁷ This means you can contribute more money to your retirement accounts and, in many cases, lower your taxable income for the year.
2023 401(k) and IRA Contribution Limits⁸
The 401(k)contribution limit for all individuals increased $2,000 in 2023 and catch-up contributions for individuals over 50 increased by $1,000. IRA contribution limits increased by $500 for all individuals, but catch-up contributions for those over 50 remained the same.
Account Type | 2023 Contribution Limit | 2023 Catch-Up Limit (for individuals over 50) |
|---|---|---|
Roth or Traditional 401(k) | $22,500 | $7,500 |
Roth or Traditional IRA | $6,500 | $1,000 |
Note that these limits apply to the collective amount you contribute to your accounts. So, if you have a traditional IRA and a Roth IRA, you can’t contribute more than $6,500 between the two accounts. (Unless you’re over 50 and can utilize the catch-up contribution.)
Before opening or contributing to an IRA, be sure to check the income restrictions on these accounts to ensure you are making the most of the account.
Experts often recommend maxing out your retirement contributions whenever possible to set yourself up for retirement and also help you pay less in taxes for that year.
Who Doesn’t Like a Gift?
Thinking about gifting someone money to help with the downpayment on a house or chipping in for a new car for your niece that finished medical school? If you keep these gifts under $17,000 per person in 2023, you don’t have to report it on your federal tax return.⁹
This means you can give up to $17,000 total to as many people as you like. If you’re married, you and your spouse can give up to $34,000 per person.
If you give over these limits, your excess gifts will be counted against your federal lifetime exemption amount, which is currently set at $12,920,000.¹⁰
You probably don’t need to worry about this limit but hey, you never know!
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 will 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 will 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.
2022 Long-Term Capital Gains Income Brackets¹¹
Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
Single | Up to $41,675 | $41,676 – $459,750 | Over $459,750 |
Married filing jointly | Up to $83,350 | $83,351 – $517,200 | Over $517,200 |
Married filing separately | Up to $41,675 | $41,676 – $258,600 | Over $258,600 |
Head of household | Up to $55,800 | $55,801 – $488,500 | Over $488,500 |
* These are the income brackets for taxes due in April 2023
2023 Long-Term Capital Gains Income Brackets¹²
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 can 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.