Tax season is here. We’ve got the numbers seniors need to know for 2023 limits and deductions.
January signals a new start … and a fresh tax season. Bah humbug! But you can prepare by going through the 2023 tax brackets, where income bumped up significantly due to inflation. You may also be able to find deductions in the SECURE 2.0 Act and Inflation Reduction Act.
Income Tax Brackets
Let’s start with the basics. Tax brackets for earned income stayed the same while qualifying income got higher to keep in line with the inflation we saw, particularly at the beginning of last year. Those married filing separately share brackets with single filers.
| Tax Rate | Single Filers | Married Filing Jointly | Heads of Household |
|---|---|---|---|
| 10% | Less than $11,000 | Less than $22,000 | Less than $15,700 |
| 12% | $11,000 - $44,725 | $22,000 - $89,450 | $15,700 - $59,850 |
| 22% | $44,726 - $95,375 | $89,451 - $190,750 | $59,851 - $95,350 |
| 24% | $95,376 - $182,100 | $190,751 - $364,200 | $95,351 - $182,100 |
| 32% | $182,100 - $231,250 | $364,200 - $462,500 | $182,100 - $231,250 |
| 35% | $231,251 - $578,125 | $462,501 - $693,750 | $231,251 - $578,100 |
| 37% | $578,126 and up | $693,751 and up | $578,101 and up |
Source: Internal Revenue Service
Long-term capital gains (on assets you own longer than a year) tax brackets stayed the same, while income to qualify for each went up. Married people filing individually have the same rate as singles.
| Tax Rate | Single Filers | Married Filing Jointly | Heads of Household |
|---|---|---|---|
| 0% | Less than $44,625 | Less than $89,250 | Less than $59,750 |
| 15% | $44,626 – $492,300 | $89,251 – $553,850 | $59,751 – $523,050 |
| 20% | Over $492,300 | Over $553,850 | Over $523,050 |
Source: Internal Revenue Service
Changes Coming in 2026Several estate and income tax provisions will sunset after 2025 unless Congress moves to extend them. Keep these in mind as you do your tax planning for the next few years. The lifetime estate and gift tax exemption will be cut approximately in half for estates (affecting high net-worth people), while it’s not clear what will happen to the gift tax exemption. Income tax brackets are expected to change for nearly all levels except the bottom two. What is now 22% will become 25%, 24% will become 28%, 32% will change to 33%, 35% will stay the same and 37% will become 39%. Standard deductions will revert back to lower levels, encouraging more tax filers to itemize. The mortgage interest deduction limit will bump back up to $1 million. Read a full list of projected changes and talk over possible changes to your portfolio with your financial advisor and/or tax professional. |
The standard deduction amount went up across all categories. Singles may claim $13,850, married couples filing jointly get $27,700, and heads of households qualify for $20,800. Add $1,850 if you’re at least 65 or blind, and $3,700 if both of those apply to you.
Online Sellers
Many older adults get extra income by online or small-scale selling, and they can breathe a sigh of relief. The IRS decided not to implement new rules this year requiring third-party settlement networks such as PayPal, Venmo, and Square Stubhub to send out Form 1099-K to clients who were paid more than $600 for goods and services. The reporting limit remains $20,000 for 2023.
Retirement Savings Rules
Required Minimum Distributions (RMDs) now start at age 73 for those who turned 72 in 2022. Your broker can help you determine the correct amount to withdraw from traditional IRAs, 401(k)s and other workplace plans. Seniors who turned 73 in 2023 must take a withdrawal by April 1, although if you are still working you can usually put off taking the withdrawal from the retirement plan at your current employer.
The government lowered the penalty for folks who fail to take their RMD, although it’s still significant. The tax for such a lapse is now 25% (down from 50%) of the missing amount. Fix your mistake promptly and they’ll lower that to 10%.
Still saving for retirement? The amounts you can tuck away have gone up. New limits on contributions for traditional IRAs and Roth accounts are $6,500, with an additional $1,000 added for people 50 and older. Roth IRA income limits are less than $153,000 for single filers and under $228,000 for people married, filing jointly. Check here for details.
Alternative Minimum Tax
If you may wind up paying the alternative minimum tax, you’ll be happy to know income limits have gone up for 2023. Single filers and heads of household must make at least $81,300, and married couples filing jointly start at $126,500. For specifics, check here.
Other changes from 2023 include residential clean energy credit, energy-efficient home improvement credit, and a clean vehicle credit. Additionally, older adults who are still working can take advantage of bumps in amounts they can add to retirement savings.
That’s a lot of good news that should translate to more and bigger tax refunds when you file.
This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.
Sources:
Blog posting provided by Society of Certified Senior Advisors
