Unless you’re living in a cave, you know that inflation has been running hot. After all their funny math, the government is telling everyone that inflation is around 8.2% (even though I think it’s higher.) The cost of everything has gone up. Rent. Utilities. Groceries. Automobiles. Even your gym membership.
One other thing, that’s in everyone’s benefit, has also gone up. Tax deductions. There are tax deductions that are adjusted every year for inflation that help you pay less tax. Here is what you need to know.
2023 Tax Brackets & The Standard Deduction
Tax brackets show you the tax rate that you pay on a portion of your income. They are adjusted for inflation every October. The standard deduction, which is an amount that reduces everyone’s income, is the deduction that affects everybody’s tax return. Here are the updated standard deduction amounts for 2023:
- Individual – $13,850 ($900 increase)
- Married – $27,700 ($1,400 increase)
- Head of Household – $20,800 ($2,700 increase)
If you’re interested in the rest of the tax bracket changes, we broke it down for you on a different page. Here’s a link.
Retirement Plan Increases
You may now contribute more to your retirement plans, such as IRA, SIMPLE IRAs, or 401(k)s. Here are the new 2023 contribution limits:
- 2023 IRA Contribution Limit – $6,500
- 2023 IRA Catchup Contribution Limit – $1,000
- 2023 401(k) Contribution Limit – $22,500
- 2023 401(k) Catchup Contribution Limit – $6,500
HSA Contribution Limits
Health Savings Accounts are a popular way for people save for future medical expenses and also get a deduction. Every year the IRS adjusts the amount you can contribute to an HSA. Here are the new deduction amounts:
- $3,850 (single)
- $7,750 (family)
- If you’re over 55 years old, you can contribute an extra $1,000
- Out of Pocket Maximums – Single $7,500
- Out of Pocket Maximums – Family $15,000
If you want to read more about HSAs, I’ve written an article about them here.
Earned Income Tax Credit
EITC has gone up to $7,430 for qualifying people that have three or more children
Gift & Estate Tax Exemption
You can now gift your loved ones up to $17,000, without worrying about tax implications
The estate tax exemption went up by almost a million dollars, to $12,920,000
These are not all the inflation adjustments that the IRS had updated, but they are the most important ones. We know that these adjustments don’t make up for the rampant amount of inflation the US dollar has experienced, but at least it helps (a little bit.)