With the end of 2022 just around the corner, now is the time to begin tax preparation for 2023. It may seem you still have enough time, but the more tax planning you do now, the more money you may be able to save in the future. Although 2022 tax filing deadlines are technically months away, some end-of-year tax decisions can save you money on your 2023 tax return. There may be some ways to slide in some last-minute changes that can reduce your 2022 tax bill.
There is still plenty of time to act before the end of the year, but you shouldn’t delay. The Waters Hardy team can assist with your tax preparation and planning if you’re ready to maximize your tax benefits. Learn more about how our expert accounting services can work out a plan for your 2022 finances and start the new year with the best tax strategies.
Optimal planning now ensures optimal savings in the future, but you should know what’s new and what has changed. There are many factors to tax planning that you need to consider. Let’s discover what a standard tax deduction is and what changes are coming for standard deductions in 2023.
How Does the Standard Tax Deduction Work?
Every year, taxpayers can choose between itemizing deductions or filing for a standard deduction. Itemized deductions are expenses allowed by the IRS that can decrease your taxable income.
The standard tax deduction is the number of deductions you can subtract from your income before you begin to owe federal taxes. However, it doesn’t include payroll taxes or state taxes. Taking the standard deduction means you can’t deduct itemized expenses.
When Should You Claim the Standard Deduction
If your standard deduction is less than your itemized deductions, you will probably save money by itemizing your deductions. It might be worth taking the standard deduction, though, if it is more than your itemized deductions.
The standard deduction is usually easier than itemizing and is typically the better deal, and more people choose this option. What you need to know, though, is that the amount for the standard deduction is adjusted annually based on inflation and varies from person to person. It’s important to understand your standard deduction every year to determine if this is the best tax route for you.
Changes to Expect for the Standard Deduction in 2023
The standard deduction amounts are adjusted annually to account for inflation. Your 2022 standard deduction will be larger than it was in 2021. Therefore, in 2023, the standard deduction will be greater than your 2022 deduction.
Determining your standard deduction amount isn’t always straightforward and simple and it can be complicated. There are a variety of factors at play that determine the amount of your standard deduction.
Let’s take a closer look at how your standard deduction will be determined in 2022 and how it will differ in 2023.
Standard Deduction for 2022 – Filed on or before April 18, 2023
- $12,950 for single or married filing separately.
- $25,900 for married filing jointly or surviving spouse.
- $19, 400 for the head of household
Standard Deduction Adjustments
- Taxpayers at least 65 years old or blind, can claim an additional standard deduction of $1,400 or $1,750 when using the single or head of household filing status.
- For taxpayers that are both 65 and blind, the additional deduction amount is doubled.
- If another taxpayer can claim you as a dependent, your 2022 standard deduction is limited to the greater of $1,150 or your earned income plus $400. Additionally, the total of the two can’t be more than the basic standard deduction for your filing status.
Standard Deduction for 2023
The income that fits in each tax bracket for 2023 is the only change from 2022. Due to the high inflation rate, there is an increase in the standard deduction amounts from 2022 to 2023. The difference is significantly larger than we usually see from one year to the next.
This is a good thing for taxpayers because the greater the standard deduction, the lower your tax bill.
Smart tax preparation begins with looking at how the standard deduction for 2023 can work for you.
- $13,850 for single or married filing separately.
- $27,700 for married filing jointly or surviving spouse.
- $20, 800 for the head of household
Standard Deduction Adjustments
- Taxpayers at least 65 years old or blind can claim an additional standard deduction of $1,500 or $1,850 if using the single or head of household filing status.
- Staying the same as in 2022, for taxpayers that are both 65 and blind, the additional deduction amount is doubled.
- If another taxpayer can claim you as a dependent, your 2023 standard deduction is limited to the greater of $1,250 or your earned income plus $400. As in 2022, the total can’t be more than the basic standard deduction for your filing status.
Optimize Your Tax Strategy with Small Business Tax Experts
Understanding your income tax bracket can help you determine what your standard deduction will be in 2023. Smart tax planning and preparation before the end of the year can maximize your benefits. For example, if you expect to be in a low tax bracket next year, you can delay some of your income to next year. On the other hand, if you expect to be in a high tax bracket, you should delay some tax deductions until your 2024 filing.
The higher your income, the more valuable the help with tax planning and compliance can be. Work with our tax professionals to ensure peace of mind knowing that your tax return is well-planned, implemented, and monitored closely.
Reach out to our tax experts at Waters Hardy to learn more about how comprehensive tax planning today can lead to optimal tax savings in the future.
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