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2023 Tax Changes

2023 Tax Changes

It’s a new year and with that comes new tax changes. Some good, and some terrible. In case you haven’t read, the IRS got $80 billion dollars. Whatever the IRS is up to this year, you must be prepared so you can strategize, save, and send the IRS less money.

Standard Deduction Has Increase

In the 1940s Congress decided that everyone is entitled to at least one deduction. That deduction is called the “standard deduction.” It’s indexed by inflation each year, which means every year it goes up. In 2023 it went up a lot because we had a lot of inflation. In 2023 the standard deduction is $13,850 if you’re single and $27,700 if you are married. If you have a mortgage or give a lot of money to charity, you may want to itemize instead. I wrote an article about the differences between the standard deduction and itemized deductions – you may read it here.

1099-K Reporting is Postponed by One Year

The IRS has announced that they are putting off 1099-K reporting for another. This is great news for people that receive money from apps like Venmo and Cash App. This means we have one more year to see if the lawmakers listen to the people (who have come out against it.) In my opinion, the IRS decided that they didn’t want to deal with the headache, and they’re hoping that Congress will increase the threshold from $600 up to something like $5,000. In fact, let’s hope they increase regular 1099s too and not just 1099-Ks.

IRA Contributions Have Increase

Just like the standard deduction, these are also index for inflation. The new maximum you can contribute is $6,000 ($7,000 if you’re over 50) per person. But before you get too excited, there are rules. If you make too much money, the IRS doesn’t like that, and they don’t give you a deduction. So, check with your CPA before funding one. Also, you may consider funding a Roth IRA instead of a Traditional IRA. If you want to learn the difference, you can learn more about it here.

Type of Retirement Contributions20232022
IRA & Roth IRAs$6,500$6,000
IRA & Roth IRA (catch ups)$1,000$1,000

401(k) & SIMPLE IRA Limits Have Also Increases

In addition to IRA contributions increasing, so have 401(k) and SIMPLE IRA limits. The 401(k) limit is up to $22,500 ($30K if you’re over 50) and SIMPLE IRA limits have gone up to $15,500 ($19K if you’re over 50).

New Energy and EV Tax Credits

If you’ve been following my blog, you know that I’ve written about the new electric vehicle (EV) tax credits and energy tax credits. Here’s a quick refresher:

EV Tax Credits

  • $7,500 tax credit for new EVs
  • $4,500 tax credit for used EVs
  • New income limits to qualify for the credit ($150K if you’re single; $300K if you’re married)
  • New cost limits on purchase of the vehicle ($55K or less for regular EV; $80K or less for SUVs or trucks)

To learn more of the details about, check out my article on New EV Tax Credits.

Energy Tax Credits

  • Solar Panel tax credits are 30% of cost & installation
  • New $1,200 annual tax credit for improving your home
  • 30% tax for energy efficient heating and cooling equipment (HVAC, heat pumps, furnaces, etc.)
  • EV home charging station tax credit

To learn more about the details and see some examples, see my article on Energy Tax Credits.

$80 Billion Dollar IRS Elephant in the Room

Unless you’re living under a rock, you’re aware the IRS just received $80 Billion in funding to hire 87,000 employees over the next 10 years. Sounds scary, but it’s not as scary as they want you to think.

First, this is over 10 years. That’s 8,700 new employees a year. A lot of those employees are going to be hired for departments that having nothing to do with auditing or collections such as: programmers, secretaries, service center workers (mail clerks), etc., etc. So, the number of auditors will be much less than what’s represented in the news.

Another thing that doesn’t get attention is the IRS is losing 50,000 employees, to retirement, in the next 10 years. Additionally, some Congress members are already trying to reduce this $80 Billion dollar funding. Don’t mistake me, there will be more IRS audits in the next few years, but not as intense as they want you to believe.

100% Bonus Depreciation Replaced with 80%

For those of you that don’t know what Bonus Depreciation is, it’s a special depreciation rule that allows you to deduct the entire cost of equipment and improvements that normally have to be depreciated over 5, 7, or 15 years. As part of Trump’s Tax Reform, bonus depreciation is supposed to be at a rate of 100% for five years and then decline 20% per year until it’s completely gone.

For example, you make leasehold improvements to a building for $20,000. Normally you would deduct that over 15 years, but with 100% Bonus Depreciation, you get to deduct the entire $20K in your first year.

YearBonus Depreciation %
2015 thru Sept 201750%
Oct 2017 thru Dec 2022100%

The first 20% decline starts in 2023, so now you only get an 80% deduction. Using the same example above. You now get to deduct $16,000 in the first year ($20K x 80%) and the remaining $4k you deduct over 15 years.

But don’t worry, you may still qualify for another special 100% deduction called the Section 179 Deduction. This allows you to deduct the entire expense in one year, but there are more rules regarding Section 179 than there are with Bonus Depreciation. So, kake sure to check with your CPA to see if you qualify.