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Individual Tax Services

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Year-End Spending Package Tackles Retirement Planning, Conservation Easements

On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023. The sprawling year-end spending “omnibus” package includes two important new laws that could affect your financial planning: the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act (also known as SECURE 2.0) and the Conservation Easement Program Integrity Act.

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What are the 2023 Tax Rates and Deductions?

Individual Tax Rate

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $725, to $1,450, depending on filing status, but the top of the 35% bracket increases by $22,950 to $45,900, again depending on filing status.

2023 Ordinary-Income Tax Brackets
Tax Rate Single Head of Household Married Filing Jointly or Surviving Spouse Married Filing Separately
10% $0 - $11,000 $0 - $15,700 $0 - $22,000 $0 - $11,000
12% $11,001 - $44,725 $15,701 - $59,850 $22,001 - $89,450 $11,001 - $44,725
22% $44,726 - $95,375 $59,851 - $95,350 $89,451 - $190,750 $44,726 - $95,375
24% $95,376 - $182,100 $95,351 - $182,100 $190,751 - $364,200 $95,376 - $182,100
32% $182,101 - $231,250 $182,101 - $231,250 $364,201 - $462,500 $182,101 - $231,250
35% $231,251 - $578,125 $231,251 - $578,100 $462,501 - $693,750 $231,251 - $346,875
37% Over $578,125 Over $578,100 Over $693,750 Over $346,875

 

Standard Deduction

  • Single: $13,850
  • Head of Household: $20,800
  • Married Filing Jointly: $27,700
  • Married Filing Separately: $13,850

Alternative Minimum Tax (AMT)

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2023, the threshold for the 28% bracket will increase by $14,600 for all filing statuses except married filing separately, which increased by half that amount.

2023 AMT Brackets
Tax Rate Single Head of Household Married Filing Jointly or Surviving Spouse Married Filing Separately
26% $0 - $220,700 $0 - $220,700 $0 - $220,700 $0 - $110,350
28% Over $220,700 Over $220,700 Over $220,700 Over $110,350

 

  • The AMT exemption phaseouts are also indexed for 2023:
  • Single or Head of Household: $81,300
  • Married Filing Jointly: $126,500

Estate and Gift Tax Exemption

The lifetime exemption is $12,920,000 with a top tax rate of 40%. A surviving spouse may be able to use the deceased spouse’s unused estate tax exemption. The annual gift tax exclusion is $17,700 per recipient.

Education and Child-Related Breaks

  • The American Opportunity Credit: Maximum credit per eligible student is $2,500 and is phased out for taxpayers with adjusted gross income in excess of $80,000 single/$160,000 joint filers.
  • The Lifetime Learning Credit: Maximum credit is $2,000 per tax return and is phased out for taxpayers with adjusted gross income in excess of $80,00 0single/$160,000 joint filers.
  • The Adoption Credit: Maximum credit is $15,950 with phaseout ranges from $239,230-$279,230 for joint, head-of-household and single filers. Married couples filing separately generally aren’t eligible for these credits.

Retirement Savings Changes for 2023

The IRS recently announced cost-of-living adjustments that apply to the dollar limitations for pensions, as well as other qualified retirement plans for 2023. The amounts increased more than they have in recent years due to inflation.

401(k) Plans

The 2023 contribution limit for employees who participate in 401(k) plans will increase to $22,500 (up from $20,500 in 2022). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees age 50 and over who participate in 401(k) plans and the other plans mentioned above will increase to $7,500 (up from $6,500 in 2022). Therefore, participants in 401(k) plans (and the others listed above) who are 50 and older can contribute up to $30,000 in 2023.

SEP Plans and Defined Contribution Plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $61,000 to $66,000. To participate in a SEP, an eligible employee must receive at least a certain amount of compensation for the year. That amount will increase in 2023 to $750 (from $650 for 2022)

SIMPLE Plans

Deferrals to a SIMPLE plan will increase to $15,500 in 2023 (up from $14,000 in 2022). The catch-up contribution limit for employees age 50 and over who participate in SIMPLE plans will increase to $3,500 in 2023, up from $3,000.

Other Plan Limits

The IRS also announced that in 2023:

  • The limitation on the annual benefit under a defined benefit plan will increase from $245,000 to $265,000. For a participant who separated from service before January 1, 2023, the participant’s limitation under a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted through 2022, by 1.0833.
  • The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $200,000 to $215,000.
  • The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will increase from $1,230,000 to $1,330,000, while the dollar amount used to determine the lengthening of the five-year distribution period will increase from $245,000 to $265,000.
  • The limitation used in the definition of “highly compensated employee” will increase from $135,000 to $150,000.
IRA Contributions

The 2023 limit on annual contributions to an individual IRA will increase to $6,500 (up from $6,000 for 2022). The IRA catch-up contribution limit for individuals age 50 and older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

What are the 2022 Tax Rates and Deductions?

    • Individual Tax Rates: 2022 tax bracket thresholds were increased by approximately 1% over 2020 levels. Download the SVA tax guide: 2022 Tax Rate Card
    • Standard Deduction:
      • Single: $12,950
      • Head of Household: $19,400
      • Married Filing Jointly: $25,900
      • Married Filing Separately: $12,950
    • Child Tax Credit: $2,000 per qualifying child/year. The eligibility is extended to age 17.
    • Alternative Minimum Tax (AMT):
      • Single or Head of Household: $75,900
      • Married Filing Jointly: $118,100
      • Married Filing Separately: $59,050
    • Exemption Phaseouts Based on AMT Income:
      • Single or Head of Household: $539,900 - $843,500
      • Married Filing Jointly: $1,079,800 - $1,552,200
      • Married Filing Separately: $539,900 - $776,100
    • Estate and Gift Tax Exemption: The lifetime exemption is $12,060,000 with a top tax rate of 40%. A surviving spouse may be able to use the deceased spouse’s unused estate tax exemption. The annual gift tax exclusion is $16,600 per recipient ($32,300 if spouses elect “split-gift” treatment.
    • Section 199A Deduction for Owners of Pass-Through Entities: Up to 20% of qualified business income is subject to various limitations. When an owner’s taxable income exceeds $170,050 ($340,100 for joint filers), the following limits are phased in over a $50,000 range ($100,000 range for joint filers):
      • 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
      • The sum of 25% of W-2 wages plus 2.5% of the cost of qualified property.
      • Deduction isn’t available for income from specified service businesses.
      • Deduction can’t exceed the greater of the owner’s share of:
    • Section 179 Expensing and Bonus Depreciation:
      • Section 179 expensing limit: $1,080,000
      • Section 179 phaseout threshold: $2,700,000
      • Bonus depreciation limit: 100%

 

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Services Offered: How SVA Can Help

Business professionals need easy access to information to make timely decisions. SVA has what you need, when you need it. Choose a topic below or just contact us directly. Our expertise is ready anytime you need it.

Planning for current and future education expenses is especially important. Several tax incentives can help reduce the cost of paying for higher education. These incentives include the American Opportunity Tax Credit, Lifetime Learning Credit, Qualified Tuition Programs, Student Loan Interest Deduction, 529 Plans, and the Coverdell Education Savings Account. The incentives can be a credit deduction or exclusion and may be limited by income.

The more you pay in taxes, the less money you have to invest in your personal financial goals. The key to reducing your tax liability rests in proactive planning. We can identify and implement key planning opportunities to minimize your current tax liability. Reach out to our experienced tax professionals who can look at your overall tax situation and help you understand and reduce your tax impact.

We can help you with:

  • At Risk Rules and Passive Activity
  • Individual Audit Assistance
  • Divorce Tax Planning
  • Health Savings Accounts (HSAs) Planning
  • Payment Planning
  • Stock-Based Compensation Planning
  • Tax Planning for Retirement
  • Estate and Trust Tax Planning
  • Charitable Giving Strategies

Being delinquent in your tax payments can result in a vast array of problems and cause substantial amounts of undue stress. Our qualified professionals can work with you in dealing with the IRS and other taxing authorities on delinquent tax liability, tax penalty, and interest issues, as well as challenges in your ability to pay the amount due. Offer in Compromise (OIC), bankruptcy, and negotiated payment schedules are a few of the strategies we can utilize in helping you deal with delinquent and disputed tax issues.

Resources

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SVA® Web Tax Guide

Visit SVA’s Web Tax Guide to access a wide array of resources that can help prepare you and your business for the upcoming tax season.

2022 Federal Tax Rates

2022 Federal Tax Rates

This easy-to-use resource has all the tax rates, deductions, credits and limits in a quick view format.

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