It's Almost Tax Time: Review Your Situation

Jan 24, 2023 9:30:00 AM by Stephen Schram

Tax law is never simple. But you can prepare for your April 15 reckoning by reviewing the past year and seeing what's coming. And the first thing to know is that April 15 is actually not April 15 in 2023. Because of the weekend and a holiday, you have until April 18 in 2023. Still, the IRS and tax professionals urge early filing.

Here are some other key items.

Social Security: According to the Social Security Administration, approximately 70 million Americans will see an 8.7% increase in their Social Security benefits and Supplemental Security Income payments in 2023. On average, according to the SSA, Social Security benefits will increase by more than $140 per month starting in January. The SSA will send notices throughout the month of December to retirement, survivors and disability beneficiaries; SSI recipients; and representative payees. Those who want to find out their new benefit sooner can do so through their personal SSA account. If you don’t have one already, you can sign up online.

401(k) and IRA limits rise for 2023: The IRS has announced that the amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 for 2022. This also applies to 403(b) plans, most 457 plans and the federal government's Thrift Savings Plan. Also increasing is the catch-up contribution limit for employees aged 50 and over who participate in the above plans. This limit has increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), and most 457 plans or the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000 starting in 2023. The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.

IRAs are also going up. The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.

HSA Limits: The HSA contribution limit for self-only for 2023 is up slightly to $3,850; for family, it is also up slightly to $7,750. The catch-up contribution for age 55 and older remains at $1,000.

Tax year 2023 annual inflation adjustments: The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, which is up $1,800 from the previous year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of household, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022. For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly). Other rates have also changed; work with a tax professional to see where you are so you can make any necessary withholding adjustments.

The Affordable Care Act: The IRS is reminding both individuals and businesses that this is very much in force and there have been recent adjustments. In mid-2022, the IRS announced annual adjustments to the ACA. According to the Society for Human Resource Management, the "2023 health plan affordability threshold — used to determine if an employer's lowest-premium health plan meets the Affordable Care Act's (ACA's) affordability requirement — will be 9.12 percent of an employee's 'household income,' down from the 2022 limit of 9.61 percent."

The Tax Cuts and Jobs Act: This, too, is very much in force. The IRS has helpfully updated guidance with a useful list. New businesses especially that may not be familiar with the act's details should consult it.

Inflation Reduction Act of 2022: This contains a powerful set of provisions. It imposes a 15% minimum tax on corporations with over $1 billion in revenue and a 1% excise tax on corporate share buybacks. This may level the playing field for small businesses. The act also provides an Affordable Care Act subsidy extension through 2025, permission for Medicare to negotiate drug prices, a cap on Medicare recipients' drug expenditures at $2,000 per year, and an electric vehicle tax break for individual and commercial vehicles.

Mileage change: Driving for business? The IRS increased the optional standard mileage rates for the final six months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes. Check your driving logs for dates to take advantage of the full amount.

Whether you're an employee, self-employed or a business owner, work with your tax adviser to keep on top of your due dates and responsibilities. For now, gradually gather the information you will need at tax time. Forbes and Nerdwallet have both provided helpful lists. (Laws may change every year, but the list of what the IRS needs, based on your sitaution, stays pretty much the same.)