June 7, 2023

Volume XIII, Number 158


June 06, 2023

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June 04, 2023

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Inflation's Effect on Taxes – The Good and the Bad

Many federal tax provisions are adjusted for inflation annually, but not all. Rising inflation may result in lower tax bills for many taxpayers in 2023. Unfortunately, the impacts of inflation on taxpayers will not lower their 2022 tax bills even though inflation is at the highest level in the past 40 years.

The standard deduction is indexed for inflation. In 2023, for married couples filing joint tax returns, the standard deduction increased by $1,800 to $27,700; and for single taxpayers the standard deduction increased by $900 to $13,850.

The tax rates for individual tax filers have not changed (with the highest tax rate remaining at 37%), but the income levels have increased between the brackets. For example, in 2023, the 32% tax bracket starts at $364,200 for married couples filing jointly (up from $340,100 in 2022); and the 35% bracket for married couples filing jointly starts at $462,500 (up from $331,900 in 2022).

Estates of decedents who die in 2023 will have an estate tax exemption of $12,920,000 (up from $12,060,000 in 2022). The gift tax exclusions also increased to the same amounts and the annual gift exclusion increased to $17,000 per donee, which allows a married couple to gift $34,000 using their annual exclusion with no limit on the number of donees.

Social security recipients will enjoy an 8.7% increase in their monthly benefits in 2023 compared to 2022.

Other increases, as a result of rising inflation, include higher maximum contributions to retirement plans, health savings accounts and flexible spending accounts.

Inflation will impact taxpayers, employees and employers negatively as well. Employees, employers and self-employed individuals will be subject to social security taxes on earnings of $160,200 (up from $147,000 in 2022).

The limitation on itemized deduction for state and local tax has not increased, although state and local taxes have generally increased and the personal exemption continues to remain at zero. Finally, there has been no reduction in the long-term capital gains tax rate or increase in the deduction for capital losses which remains limited to $3,000 per year in excess of capital gains.

© 2023 Chuhak & Tecson P.C.National Law Review, Volume XIII, Number 88

About this Author

Edwin Josephson Tax Attorney Chuhak and Tecson

As principal and practice group leader of the firm's Corporate Transactions and Business Law group, Ed Josephson brings a powerful set of credentials to the table in representing entrepreneurs that need sound business counsel. 

As a certified public accountant and business attorney, Ed is able to go beyond traditional legal services in identifying and resolving business issues. He focuses his law practice on general corporate, tax law and estate planning, representing more than 200 entrepreneurial businesses, and Ed often serves as the outside-...