The IRS is increasing the standard deductions for 2023 as inflation intensifies

https://www.npr.org/2022/10/19/1129843538/irs-standard-deductions-taxes-2023-inflation

by paulpauper • 4 years ago

32 22 4 years ago

rudolph9• 4 years ago

So does this apply to 2022 paces paid in 2023 or will effect the next tax cycle?

Phrasing like “2023 tax year” typically means for taxes paid in 2023 (i.e. your return will be due in 2024 with any concomitant payment/refund). So this won’t take effect for another year, basically.

vikingerik• 4 years ago

It takes effect at the start of 2023. You'll want to increase your 401k contributions right away at start of the year if you want to reach the new maximum. You can't do 401k contributions later while filing the taxes like you can for an IRA.

sokoloff2• 4 years ago

Other good news (if you assume you'll be taxed at a lower marginal rate in retirement than you are now): the 401(k) elective deferral limits go up by $2K to $22.5K (and the catchup contribution for those over 50 goes from $6.5K to $7.5K, so from a total of $27K to $30K).

MrFoof• 4 years ago

To correct the above since I think something got deleted as OP was editing themselves:

* 20,500 -> 22,500 : 401K employee contribution limit changes

* 6,000 -> 6,500 : IRA contribution limit changes, for those under age 50

* 6,000 -> 7,500 : IRA contribution limit changes for those age 50 and older (includes $1000 catch-up)

DontchaKnowit3• 4 years ago

Man 401ks are such a sham imo

kelnos• 4 years ago

Why would you say that? If you expect your tax bracket to be lower in retirement, then it lets you keep money you'd otherwise have to give to the government. And many employers offer (limited) matching, which is just free money.

anm892• 4 years ago

Decreasing taxes to fight inflation. We've clearly got the experts in the driver's seat here.

Was listening to doomberg musing on energy policy last night and he made the observation that if we could just barely kind of get our shit together, we could be in an unbelievably dominant geopolitical position in the short term but instead we are almost certainly going to footgun ourselves and then wonder what happened.

I couldn't agree more

edmundsauto• 4 years ago

Can you elaborate on why you think it’s a bad idea to increase the standard deduction? I am not an economist so it doesn’t appear like a clearly bad idea to me, and it gets money into peoples hands when they need it.

thoughtstheseus2• 4 years ago

Currently the Federal Reserve is attempting to reduce demand for goods and services by raising interest rates dramatically.

Reducing taxes increases demand and works against the Federal Reserve here.

The US needs a credible tax policy otherwise no one will buy Federal Government Debt. How does the government source money? Via taxes or new debt issuances.

Without sufficient taxes you cannot issue more government debt. UK just had this issue, EU looks like it’s next. Maybe even the USD after that.

anm892• 4 years ago

Counterintuitively, I'm not really against the deduction. At least as a mostly apolitical person I'll say, I believe it's a net gain for me personally.

But if you were an economic planner the equations involved here are really simple. The more cash you push out to consumers, the harder it is to fight inflation. You could make an argument that it is neutral to inflation if you believe this would mean a cut in government spending that was proportional to the increase in consumer spending, but back here in reality, the government just spends what ever it's going to spend on deficit and prints debt so the meaningful metric is private sector liquidity.

teraflop• 4 years ago

Decreasing taxes to fight inflation. We've clearly got the experts in the driver's seat here.

This article is not describing any kind of policy change or decision that was made by the IRS.

The size of the standard deduction is set by a federal law passed by Congress. That law fixed the deduction at $3,000 (for single filers) in 1988, and specified that it should be adjusted for inflation in future years by multiplying by the change in CPI, so that the real value of the deduction stays constant.

The IRS is just doing the arithmetic and updating the forms, as they're legally required to.

divbzero• 4 years ago

A related change is the shift in income tax brackets for 2022 [1] vs. 2023 [2].

Tax bracket thresholds, single:

  Rate      2022      2023
   35%  $215,950  $231,250
   32%  $170,050  $182,100
   24%   $89,075   $95,375
   22%   $41,775   $44,725
   12%   $10,275   $11,000

Tax bracket thresholds, married filing jointly:

  Rate      2022      2023
   35%  $431,900  $462,500
   32%  $340,100  $364,200
   24%  $178,150  $190,750
   22%   $83,550   $89,450
   12%   $20,550   $22,000

Retirement account contribution limits [3] have also increased:

            2022      2023
   IRA    $6,000    $6,500
  401(k) $20,500   $22,500

Overall, IRS adjustments for 2023 are roughly:

  +6.9% standard deductions
  +7.1% tax brackets
  +8.3% IRA contribution limits
  +9.8% 401(k) contribution limits

[1]: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju...

[2] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju...

[3] https://www.irs.gov/newsroom/401k-limit-increases-to-22500-f...

The IRS is increasing the standard deductions for 2023 as inflation intensifies

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