Every year, the IRS issues tax changes to adjust to inflation. The tweaks are critical to prevent a “bracket creep” phenomenon that pushes taxpayers into a higher tax bracket.
However, the 2023 tax changes are larger-than-usual to cater to the skyrocketed inflation Americans have seen through 2022. The massive change could mean many people stay in a lower tax bracket. Here’s a run-down of thresholds and limit will shift and a comparison to 2022.
The Most Important Tax Law Changes in 2023
The IRS announced 60-odd tax provisions for the 2021 tax year, including:
- The 2023 standard deductions change
- IRS tax brackets adjustment
- Capital gain tax change
- Earned income credit
Of the 60, two changes are the most wide-reaching: the standard deductions and the IRS tax bracket adjustment. Let’s dig deep into the two changes.
The Standard Deduction and 2023 Tax Bracket
Taxpayers can itemize their tax returns or take a standard annual deduction to lower their taxable income. The IRS announced that the standard deduction for the 2023 tax year would increase by $900 for single filers, 1800 for married couples, and $1400 for heads of household.
The table below compares 2022 and 2023 standard deductions.
| Filing status | Standard deduction 2022 | Standard deduction 2023 |
| Single | $12,950. | $13,850. |
| Married, filing jointly | $25,900. | $27,700. |
| Married, filing separately | $12,950. | $13,850. |
| Head of household | $19,400. | $20,800. |
According to the changes, you can get more tax relief by taking tax deductions rather than itemizing your tax return.
2023 IRS Tax Brackets Marginal Income Changes
The US has seven federal tax brackets. While the marginal rate — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — remains constant from 2022, the IRS has significantly adjusted incomes that inform the bracket.
The table below compares 2022 and 2023 income thresholds across all filing statuses in 2023.
The 2023 adjustment means you may stay in a lower tax bracket. Even if you receive a cost-of-living raise, you can avoid getting a portion of your income pushed into a higher bracket. For instance, in 2023, a married couple filing jointly can make a maximum of $89,450 to remain in the 12% bracket compared to 83,550 in 2022.
Strategies to Maximize Deductions Under the 2023 System
With opportunities specific to the current tax laws, you can strategize to maximize deductions by:
- Charitable gifting
- Contributing to tax-advantaged accounts like 401(k), HSA, 403(b) and 529 college saving plans
- Tax loss harvesting
- Early payment of business expenses
Nearly everyone can strategize to maximize deductions. However, you’ll need some planning and research to identify the deductions you are eligible to take.
