Taxes are probably the bane of your existence, especially if you’re a business owner or don’t have a handy accountant to tell you all about the latest changes the IRS made in that obscure law that will make tax reasons feel like the world’s biggest bucket of awfulness.
Plus, the IRS has announced some major adjustments to a bucketful of tax rules that will begin applying in 2023, so you need to refresh your tax knowledge as soon as possible. These rules will influence your returns in 2024.
Aside from that, inflation is causing problems at every level of the global supply chain, so you need to be aware of every dollar as much as you can. Fortunately, we’ve saved you from looking over the tax manual or tipping over from sheer awfulness.
Let’s tie our seatbelts and look at the five most important tax laws and threshold changes you need to know for 2023 and your returns in 2024.
5 Important Tax Changes to Know About in 2023
Wondering what the IRS has done now to your paystub? Or what tax changes should you be aware of during 2023 as an independent contractor? Feeling anxious?
Here are five rules you absolutely have to know about during 2023 to make sure your 2024 returns are as big as you want:
1. Standard Deduction Limit Has Increased
The standard deduction will rise in 2023. They have changed to the following:
- It has risen from $25,000 in 2022 to $27,700.
- It has risen from $12,950 in 2022 to $13,850.
- It has risen from $19,400 in 2022 to $20,800.
2. Earned Income Tax Credit Has Risen
Your earned income tax is going to increase. This will help low- to moderate-income workers reduce the amount they owe to the IRS.
The amount of tax for taxpayers with three or more children is $7,430, from $6,935 in 2022. The tool on the IRS’s website can help you find out if you qualify for earned income tax.
3. Capital Gains Tax Threshold Has Shifted
The capital gains tax threshold has been increased by the IRS for 2023. The zero rates apply to capitals gains between:
- $0 to $44,625 for single filers and married couples filing separately
- $0 to $59,750 for heads of households
- $0 and $89,250 for joint filing married couples
The 15% amount applies to capitals gains between:
- $44,626 to $276,900 for married couples filing separately
- $44,626 to $492,300 for single filers
- $59,751 to $525,050 for heads of households
- $89,251 to $553,859 for married couples filing joints
Long-term capital gains above the limits defined above are taxed at 20%. Short-term gains are taxed as ordinary income.
4. Marginal Tax Rate Thresholds Have Shifted
In 2023, the marginal tax rate, the rate you pay on an additional dollar of income, thresholds will be adjusted due to inflation. The new marginal tax rates are:
- 10% – It is for incomes less than $11,000. Joint filing couples have to pay marginal tax after $22,000.
- 12% – It is for incomes above $11,000. The limit for joint couples is $22,000.
- 22% – It is for incomes above $44,725. The limit for joint couples is $89,450.
- 24% – It is for incomes above $95,375. The limit for joint couples is $190,750.
- 32% – It is for incomes above $182,100. The limit for joint couples is $364,200.
- 35% – It is for incomes above $231,250. The limit for joint couples is $462,500.
- 37% – It is for incomes above $578,125. The limit for joint couples is $693,750.
5. Contributions to IRA, HSA, and 401(k) Have Increased
The IRS has increased contributions to IRA, HAS, and 401(k) for 2023 to adjust for inflation. The IRA contribution has increased from $6,000 to $6,500. But the catch-up contribution for people who are above 50 is still $1,000, meaning older people can contribute $7,500 to their IRA.
The health savings account (HAS) contributions limits are being increased in 2023. They are now $3,850, from $3,650 for individuals. For families, the contributions limit has increased to $7,750, up from $7,300.
To contribute to your HSA, your deductible should at least be $1,500 for individual coverage and can’t exceed $7,500. Family coverage should at least be above $3,000 and no more than $15,000.
Your 401(k) contribution has increased for 2023 from $20,500 to $22,000. For people above 50, the catch-up contribution is going to be $7,500, meaning they can contribute around $30,000 to their 401(k) in 2023.
The Takeaway
Taxes rule your business life. If you don’t pay them, you’ll be penalized, and if you pay them incorrectly, you’ll be penalized. So, paying them correctly the first time is the best thing you can do for your sanity.
And the best way to keep your tax knowledge updated is to keep track of any changes the IRS makes to tax laws and thresholds. You should visit the IRS’s website to find any tax law and threshold changes.
You should never check every law change to see if it applies to your situation. That’ll just drive you nuts. Just take a look at short articles like ours to understand if you’ll be in trouble or not. If you aren’t, at least you know about the new tax changes. But if you are, you’re saved.
We’ve talked about every tax law you need to know about in 2022. Knowing about these might allow you to keep more money in your pocket and help you get happier and larger returns in 2024.
