The deadline for filing a personal tax return for tax year 2023 is April 15, 2024 for most people. As in previous years, there are some tax changes to keep track of, such as inflation adjustments. Here's a rundown of issues to consider as you prepare to file your 2023 return.
- The deadline for filing your 2023 tax return is April 15, 2024.
- The standard deduction for married filing jointly taxpayers is $27,700 for the 2023 tax year. It's $13,850 for single filers and those who are married but file separate returns.
- There are still seven marginal tax rates with higher income bracket limits in 2023 to account for inflation.
- Estates of people who died during 2023 have a basic exemption amount of $12.92 million, up from $12.06 million in the previous year.
Tax Brackets and Marginal Rates
There are still seven marginal tax rates at the federal level: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the income thresholds increased from 2022 to 2023. Here's a rundown of tax brackets for 2023, due in 2024:
|2023 Tax Brackets and Rates|
|?2023 Tax Rate||Single Filers||Married Filing Jointly||Heads of Household|
|10%||?$0 to $11,000||?$0 to $22,000||?$0 to $15,700|
|12%?||?$11,000 to $44,725||?$22,000 to $89,450||?$15,700 to $59,850|
|22%?||$44,725 to $95,375||?$89,450 to $190,750||?$59,850 to $95,350|
|24%?||?$95,375 to $182,100||?$190,750 to $364,200||?$93,350 to $182,100|
|32%?||?$182,100 to $231,250||?$364,200 to $462,500||?$182,100 to $231,250|
|35%?||?$231,250 to $578,125||?$462,500 to $693,750||?$231,250 to $578,100|
|37%?||$578,125 or more||?$693,750 or more||?$578,100 or more|
The standard deduction is the portion of your income that's not subject to income tax. You can take the standard deduction unless you decide to itemize your deductions on Form 1040 Schedule A instead.
The Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the standard deduction beginning in 2018. These changes expire after 2025 unless Congress takes steps to renew them. Here are the standard deduction amounts by filing status for the 2023 tax year:
|Standard Deductions 2023|
|?Filing Status||2023 Standard Deduction|
|Married Filing Separately?||$13,850|
|Heads of Household?||$20,800|
|Married Filing Jointly?||$27,700|
It's easier for most filers to take the standard deduction but it makes sense to itemize if the value of your itemized deductions is greater than the standard deduction for your filing status. Not much has changed for 2023, but here are a few reminders:
- State and local taxes (SALT): The combined deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
- Mortgage interest deduction: You can deduct your mortgage interest on up to $750,000 of debt. The limit is $1 million if you bought the home before Dec. 16, 2017.
- Charitable donations: The cash donation limit of 60% of AGI remains in place for 2023. Note that this limit is not automatic; you must elect it on your Form 1040.
- Medical expenses: You can deduct medical expenses that exceed 7.5% of your AGI.
- Miscellaneous deductions: You can no longer deduct miscellaneous itemized deductions unless you claim a deduction that's related to certain unreimbursed employee expenses.
Capital Gains Tax Rates
The tax treatment of long-term capital gains changed with the TCJA. The capital gains tax brackets closely aligned with income tax brackets before 2018, but the TJCA created unique capital gains tax brackets:
|Long-Term Capital Gains Tax Rates for 2023|
|?Filing Status||0% Rate||15% Rate||20% Rate|
|Single||Up to $44,625||$44,625 to $492,300||Over $492,300|
|Head of Household||Up to $59,750||$59,750 to $523,050||Over $523,050|
|Married Filing Jointly||Up to $89,250||$89,250 to $553,850||Over $5553,850|
|Married Filing Separately||Up to $44,625||$44,625 to $492,300||Over $492,300|
Child Tax Credit
The Child Tax Credit is a tax benefit granted to American taxpayers for each qualifying dependent child. The credit amount is $2,000 per qualifying child and the maximum refundable portion of the credit is $1,600 in 2023.
Alternative Minimum Tax
The alternative minimum tax (AMT) limits certain tax breaks for higher-income taxpayers to ensure that they pay at least a minimum amount of income tax. According to the Tax Foundation, "The federal AMT was created in 1963 after Congress discovered that 155 high-income taxpayers were eligible to claim so many deductions that they ended up with no federal income tax liability at all."
High-income taxpayers have to calculate their tax bill twice, once using the standard income tax system and then again under the AMT. They must pay the higher of the two results. The AMT is levied at two rates: 26% and 28%.
Here are the AMT exemptions and phase-outs for 2023:
|AMT Limits for 2023|
|?||2023 Exemption||2023 Phase-out|
|?Married Filing Jointly||$126,500||$1,156,300|
Five states (California, Colorado, Connecticut, Iowa, and Minnesota) have their own separate alternative minimum tax (AMT) in their individual income tax codes.
There is a limit of 60% of AGI on cash contributions for those who itemize: You can deduct donations for up to 100% of your AGI. Donations to donor-advised funds and supporting organizations don't qualify.
401(k) Plan Contribution Limits
The contribution limit for employer retirement plans such as 401(k)s, 403(b)s, most 457 plans, and the federal government’s thrift savings plan (TSP) is $22,500 for 2023. The catch-up contribution limit for employees ages 50 or older is $7,500 for 2023.
The contribution limit for SIMPLE retirement accounts is $15,500 for 2023, and a $3,500 catch-up limit applies to participants age 50 and up for both years.
IRA Contribution Limits
The annual contribution limit for traditional IRAs and Roth IRAs increases to $6,500 for 2023. There's an additional catch-up contribution of $1,000 for those over 50.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction may be reduced or phased out if either the taxpayer or their spouse was covered by a retirement plan at work during the year. The phase-outs don't apply if neither the taxpayer nor their spouse is covered by an employer-sponsored retirement plan.
Traditional IRA phase-out ranges for 2023 are as follows:
- $73,000 to $83,000 for single taxpayers covered by a workplace plan
- $116,000 to $136,000 for married taxpayers filing jointly when the spouse making the IRA contribution is covered by a workplace retirement plan
- $218,000 to $228,000 for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered
- The phase-out range for a married individual filing a separate return who is covered by a workplace retirement plan is not subject to an annual cost-of-living adjustment and remains at $0 to $10,000 in 2023.
Roth IRA contributions are not tax-deductible. There are also income limitations on the amount you can contribute to a Roth IRA. The income phase-out range for taxpayers making contributions to a Roth IRA is $138,000 to $153,000 for singles and heads of household in 2023. The income phase-out range is $218,000 to $228,000 for married couples who file jointly.
The Saver's Credit
People with low to moderate incomes may qualify for the saver's credit, a dollar-for-dollar reduction of the taxes they owe. The credit is available to people who contribute to an IRA, 401(k), or any other qualified retirement account, provided their AGI falls within specific parameters.
The income limit for the saver’s credit (also referred to as the retirement savings contributions credit) is $73,000 for married couples filing jointly in 2023, $54,750 for heads of household, and $36,500 for singles and married individuals filing separately.
Required Minimum Distributions (RMDs)
Required minimum distributions (RMDs) are back for 2023 and beyond. You must start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, and retirement plan accounts at age 72. The withdrawal amount is based on a calculation dictated by factors like account value and longevity. The Secure 2.0 Act, signed into law in late 2022, raises the RMD starting age in two tranches: to 73 starting in 2023, and to 75 starting in 2033.
Roth IRAs have no required minimum distributions during the account owner's lifetime. You can leave the money invested if you don't need it and let the account grow tax-free for your heirs.
Earned Income Tax Credit
The earned income tax credit (EITC) is a refundable tax credit that helps lower-income taxpayers reduce the amount of tax owed on a dollar-for-dollar basis. It's a refundable tax credit so taxpayers may be eligible for a refund even if they have no tax liability for the year.
Here are the EITC AGI limits and maximum credit amounts for 2023:
|EITC for 2023|
|?Dependents||Single or Head of Household||Married Filing Jointly||Maximum EITC|
HSA Contribution Limits
The dollar limit for employee salary reductions for contributions to a health flexible spending account (FSA) is $3,050 for 2023.
For tax year 2023, people who have self-only coverage in a medical savings account (MSA) must have an annual deductible that's between $2,650 and $3,950. The maximum out-of-pocket expense for self-only coverage is $5,300.
The annual deductible for participants with family coverage must be between $5,300 and $7,900 for 2023. For family coverage, the out-of-pocket expense limit is $9,650.
The IRS often extends tax filing and payment deadlines for victims of major storms and other disasters. Consult IRS disaster relief announcements to determine your eligibility.
Estate Tax Exemption and Annual Gift Exclusion
Estates of people who die during the tax year have a basic estate tax exemption amount of $12.92 million in 2023. The annual exclusion for gifts is $17,000 for 2023.
What Is the Deadline for Filing My 2023 Tax Return?
Your 2023 tax return is due by Monday, April 15, 2024, unless you live in Maine or Massachusetts. Your deadline is April 17 if you live in either of these states because they observe national holidays on April 15 and 16. You can get an automatic six-month extension by filing Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
Should I Hire a Tax Preparer or Use Tax Software?
A slight majority of people in the U.S. pay a professional tax preparer to file their returns but tax software such as TurboTax has made it easier for people to prepare and file their own returns. The decision can come down to cost: Tax software is generally cheaper than hiring a tax pro.
But you should also consider the complexity of your return. Go the pro route if you own a business, had a major life event, or want to itemize. Consider your tax proficiency and your schedule. Of course, an experienced tax preparer may save you more money in taxes than you would spend on their services, so that should be taken into account, too.
Why Are There So Many Tax Changes Every Year?
The IRS adjusts tax rates and income brackets yearly to keep pace with inflation. More than 60 tax provisions are tweaked each year but not all are adjusted. For example, the Lifetime Learning Credit hasn't been adjusted since 2020.
The Bottom Line
IRS inflation adjustments intend to keep federal taxes in line with inflation. Given that inflation started climbing in 2021 and continued climbing further in 2022 to historically high levels, particularly when compared to the last few decades, it's important to note the adjustments from previous years. It's also helpful to keep tabs on tax law changes that are unrelated to inflation.
This information can help you plan for the 2023 tax year and beyond. Just be sure to keep an eye on 2024 adjustments going forward so you can plan ahead for that tax return due in 2025.
Tax Foundation. "2023 Tax Brackets."
IRS. "Publication 5307, Tax Reform Basics for Individuals and Families." Pages 1, 4.
IRS. "Topic No. 503 Deductible Taxes."
IRS. "Publication 5307, Tax Reform Basics for Individuals and Families." Page 5.
IRS. "Publication 5307, Tax Reform Basics for Individuals and Families." Page 6.
IRS. "Publication 5307, Tax Reform Basics for Individuals and Families." Page 7.
Tax Foundation. "Does Your State Have an Individual Alternative Minimum Tax (AMT)?"
Tax Policy Center. "What Is The AMT?"
Tax Foundation. "Does Your State Have an Individual Alternative Minimum Tax (AMT)?"
IRS. "Exempt Organization Types."
IRS. "IRA Deduction Limits."
U.S. Congress. "One Hundred Seventeenth Congress of the United States of America." Page 831.
IRS. "When to File."
Federal Reserve Bank of St. Louis. "2021: The Year of High Inflation."
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