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10 Tax Changes in 2023

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Business Operations

02-21-2023

TABLE OF CONTENTS

There are 10 significant tax changes in 2023 that can have an impact on your business, no matter the size.

The government has the option to raise taxes to fund public expenditure, or lower taxes to promote economic growth. Both scenarios will have a significant impact on consumer spending and corporate operations.

If the government lowers the income tax, customers will have more discretionary money and will spend more. In contrast, a rise in the Value-Added Tax (VAT) will drive up the cost of items and reduce consumption.

Corporate tax or business rate increases have the most impact on businesses. Companies will also spend more as a result of a rise in national insurance because employers and employees split the cost of payment.

First, let us discuss a few examples of business taxes that exist.

There are two major business tax types:

  • Direct Tax -Direct tax includes income tax, national insurance, and corporation tax.
  • Indirect tax - Indirect tax includes value-added tax (VAT).

Now let’s discuss the major tax changes of 2023.

1. Changes in Sales Tax

U.S. sales tax is levied against the final buyer of a seller's goods or services, and to make matters more complicated, it is mostly controlled at the state level.

It's understandable how businesses may feel overwhelmed by the sheer number of tax rates they need to track to be compliant, given that each state has its own tax rate, and there are routinely thousands of modifications to sales tax rates per year. And occasions like sales tax holidays simply make things more complicated.

2. Changes in Income Tax

As you make more money, the U.S. taxes your income at progressively greater rates. In 2023, those rates, which range from 10% to 37%, won't change. The amount of income subject to tax at each rate is what is changing.

An unmarried filer with a taxable income of $95,000, for instance, will pay a maximum rate of 22% in 2023, down from 24% in 2022. In the event that there are no changes in income between the two years, it translates to a $429 tax savings.

3. Alternative Minimum Tax (AMT) Thresholds for 2023

Regardless of the deductions and other benefits you claim, if you have a high income, you can still owe taxes. The alternative minimum tax, which aims to provide a uniform base tax rate for all earnings, is to blame for this. For 2023, changes will be made to the AMT exemption as well as the income threshold at which it starts to phase out.

4. Marginal Tax Changes for 2023

The standard deduction also rises in 2023, going from $25,900 to $27,700 for married couples filing jointly. In 2023, single filers will be able to claim $13,850 instead of $12,950.

5. The Greater Barrier for Long-Term Capital Gains of 0 Percent

Long-term capital gains taxes are less likely to be due if you plan to sell investments from a taxable portfolio in 2023.

The IRS also raised the income criteria for the 0%, 15%, and 20% long-term capital gains rates for 2023, which are applicable to lucrative assets kept for more than a year. These increases were made in response to inflation.

6. Greater Roth IRA Contribution Ceiling

By raising the phaseout range for married couples filing jointly from $218,000 to $228,000 to between $138,000 and $153,000 for single taxpayers, more Americans may become eligible in 2023.

7. Charitable Deductions

How much of your charitable contributions you may deduct is one of the greatest adjustments for the 2023 tax season. Unfortunately, the modifications eliminate the majority of the additional benefits provided in 2021 as a result of the pandemic. For non-itemizers—those who take the standard deduction—the $600 charity deduction, for instance, has been eliminated. 

8. Change in Earned Income Tax Credit (EITC)

This is a major issue. A refundable benefit, the EITC is intended to assist low- and middle-income households. A single filer without children must have an AGI below $16,480 in order to be eligible for the credit in the 2022 tax year, while the maximum for a married couple with three or more children is $59,187.

9. Child Tax Credit

Have a family? There’s a tax credit specifically for you! You can deduct up to $2,000 for each dependent under the age of 17 using the child tax credit (CTC). For married couples filing jointly, the income cap is $400,000, while it is $200,000 for everyone else. Additionally, the CTC is up to $1,500 partly refundable.

10. Student Loan Forgiveness Tax

The Biden administration revealed a proposal to cancel up to $20,000 in student loans per person. As long as the debt forgiveness occurs before 2025, you won't have to pay federal income taxes on it according to the American Rescue Plan.

Summary

For the 2023 tax year, the IRS has revealed its yearly inflation adjustments. The thresholds for the federal tax bands for personal income taxes are raised for 2023. This indicates that the Internal Revenue Service will exclude more taxpayers' income from taxes in 2023 as a result of increased inflation. The IRS increased and decreased thresholds and amounts for the standard deduction and tax rates by around 7%. As a result, many taxpayers in 2023 who earned the same amount of money in 2022 will still be at a lower tax rate. They'll have to pay less in taxes.


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