As the years go by, changes are inevitable. And this includes tax changes. Tax is an inherent part of any economy, and it is very important to keep up to date with these changes to avoid falling into any financial pitfalls. In 2023, many new tax changes are expected to come into effect, and it is important to start preparing for them.
Changes to Tax Brackets
One of the most significant tax changes that are expected to come into effect in 2023 is related to the tax brackets. The US tax code is divided into seven different brackets, and each of these brackets has a different tax rate. In 2023, the tax brackets are expected to change, and this could impact the amount of tax that you pay.
Estate Tax Exemption Increase
Another significant tax change in 2023 is related to the estate tax. The estate tax is a tax that is levied on the transfer of property after someone passes away. In 2023, the estate tax exemption is expected to increase from $11.7 million to $12 million. This means that individuals can transfer up to $12 million in assets tax-free to their heirs.
Increase in Capital Gains Tax
Additionally, the capital gains tax is expected to be increased in 2023. This is a tax that is applied to the profit earned when a person sells an asset that has appreciated in value. In 2023, the capital gains tax is expected to increase significantly for individuals with a higher income. This could impact individuals who have invested heavily in stocks or real estate.
The Return of the SALT Deduction
Moreover, the tax deduction for state and local taxes (SALT) is expected to return in 2023. Previously, individuals could deduct their state and local taxes from their federal tax bill. However, this was temporarily suspended under the Tax Cuts and Jobs Act (TCJA). In 2023, the SALT deduction is expected to return, which could provide significant relief for individuals living in high-tax states.
Increased Retirement Contribution Limits
Another tax change that is expected to come into effect in 2023 is related to retirement accounts. The amount of money that individuals can contribute to their 401k retirement accounts or IRA is expected to increase. This provides an opportunity for individuals to save more for their retirement.
Changes to Child Tax Credit
Lastly, in 2023, there could be changes to the child tax credit. The child tax credit is a tax credit given to parents for every child that they have. In 2023, the child tax credit is expected to increase from $2,000 to $3,000 per child. Additionally, parents with children under the age of six may qualify for an additional $600 per child.
How You Can Prepare
This year is expected to bring about several significant tax changes. It is important to familiarize yourself with these changes and to prepare accordingly. By doing so, you can avoid any potential financial pitfalls and ensure that you are making the most of the opportunities that these changes provide. Of course, if you have concerns about your taxes – either personal or business – you may want to contact a tax professional near you.