While there are no major changes from last year, due to the surge in inflation, many tax figures annually adjusted for inflation will increase at a historic pace in 2023. For example, the unified gift and estate lifetime exclusion increases by almost $1 million per person for 2023 (from $12,060,000 to $12,920,000).
Many taxpayers see the new year as a time for a fresh look at financial plans.
A first step in planning for the year ahead is for taxpayers to determine their tax bracket. Putnam’s “2023 tax rates, schedules, and contribution limits” can be a useful reference to review with a financial advisor.
With the changes in tax rates and contribution levels, there are areas where individuals may want to consider revisions to their tax strategy for the year ahead. For example, the maximum amount a participant can defer salary into a defined contribution plan increases from $20,500 to $22,500.
Here’s a look at some of the key tax figure changes for 2023:
Some notable changes for 2023 include:
- Despite some debate in Congress, no major legislation impacting individual taxes in 2023 materialized
- Higher-income workers will see more of their paycheck contributed to Social Security as the wage base increases from $147,000 to $160,200
Planning considerations
- Consider using the higher annual gifting limit to transfer wealth to other family members, including 529 plans that allow five years’ worth of gifts to be made up front
- Higher contribution limits for retirement accounts and health savings accounts allows savers to build their tax-advantaged savings
- For those with considerable assets, consider large gifts now based on the current lifetime gift/estate exclusion before the sunset provision takes effect at the end of 2025. At that time the lifetime amount is slated to be roughly cut in half
- Monitor developments on Capitol Hill to prepare for potential tax law changes. Even slight changes can provide opportunities for taxpayers to save or gift more
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