Tax Tips & Updates For 2023

Niagara University Professor of Accounting Lei Han, Ph.D., CPA, provides tax tips for 2023 and this year’s updates filers need to know

by: Lei Han

1) For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900. For heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from tax year 2022. For joint filers, the standard deduction rises to $27,700, up $1,800 from 2022.

2) Tax brackets have changed. For instance, for 2023 single filers and joint filers will enter the 24% tax bracket at over $95,375 and $190,750, respectively. That’s up from $89,075 for single filers and $178,150 for joint filers in 2022.

3) The filing deadline for the tax year of 2022 is April 18, 2023 (though if you file for an extension, you have until Oct. 16, 2023). Taxpayers in the storm affected areas of California, Alabama, and Georgia now have until October 16, 2023, to file various federal individual and business returns and to make tax payments.

4) Those who purchased new electric cars in 2022 can claim a credit of up to $7,500, but a new qualifying factor was introduced in mid-year. Vehicles purchased between Aug. 17 and Dec. 31 must have undergone final assembly in North America.

The electric vehicle tax credit was revised by the Inflation Reduction Act and became effective for 2023-2032. The new credit allows for a max credit of $7,500 for new electric vehicles, and up to $4,000, limited to 30% of sales price for used vehicles. Eligible vehicles must have an MSRP of $80,000 and under for vans, SUVs and pickup trucks ($55,000 and under for other vehicles) to qualify. For used vehicles, the cap is set at $25,000. To enjoy the tax credit, taxpayers’ MAGIs must not exceed the income eligibility cap. For new cars, single taxpayers’ MAGI must not exceed $150,000 and joint filers’ must not exceed $300,000. For used cars, single taxpayers’ MAGI must not exceed $75,000 and joint filers’ must not exceed $150,000.

5) Tax breaks and stimulus payments adopted during the pandemic are nearly all gone. This includes the child tax credit, which returned to a maximum of $2,000 per child for eligible families. The child and dependent care tax credit for 2022 is non-refundable and only allows for up to $3,000 eligible expenses for one child/dependent and $6,000 for more than one. The maximum credit percentage dropped from 50% to 35%. Therefore, the top credit for one child/dependent is $1,050 and $2,100 for more than one. The contribution to dependent FSAs once was set at $10,500 for 2021 and is back to $5,000 for 2022.

6) Charitable donations for people who do not itemize their deductions have expired. For taxpayers who itemize their deductions, the once increased limit on qualified contribution up to 100% of their AGI reverted back to 60% in 2022.

7) The IRS increased the amount that taxpayers can deduct for gas mileage, benefiting taxpayers who take the mileage deduction for business purposes and medical expenses. For the last six months of the year, from July 1 to the end of 2022, the business-related mileage rate rose to 62.5 cents per mile, up from 58.5 cents for miles driven Jan. 1 to June 30. In 2023, the business-related mileage rate went up to 65.5 cents per mile.

8) For the 2022 tax year taxpayers can claim a lifetime credit of up to $500 for qualified home improvement expenses related to energy efficiency, such as replacing exterior doors, windows, insulation materials or water heaters. This will increase significantly for 2023. The Inflation Reduction Act amended the Nonbusiness Energy Property Credit and renamed it as the Energy Efficient Home Improvement Credit. The new credit is worth up to $1,200 per year for a qualifying property placed in service on or after January 1, 2023. An additional $2,000 limit on credit per year applies to heat pumps and biomass stoves and boilers.

9) The social security tax wage base has increased to $160,200 for 2023 to from $147,000 for 2022.

10) The American Rescue Plan Act enhanced the credit for 2021 and 2022 to lower premiums for people who buy health insurance on their own. The eligibility requirement for 2022 was more stringent than for 2021.

11) The American Rescue Plan of 2021 changed the reporting threshold for third-party settlement organizations, from more than 200 transactions per year and more than $20,000, to more than $600 per year, starting 2022. In December 2022, the IRS announced the postponement of the implementation.

12) The max contribution to 401k is set at $20,500 (an additional $6,500 for people aged 50 and up) for 2022. The limit on contribution to IRAs is $14,000 (an additional $3,000 for people aged 50 and up).

13) The limit on the annual contribution to the HSAs is set at 3,650 for self-only coverage and $7,300 for family coverage for the tax year 2022. The limit on the annual contribution to the healthcare FSAs is set at $2,850 for 2022.

14) The foreign earned income exclusion went up to $112,000 for 2022 from $108,700 for 2021.

About Niagara University

Founded by the Vincentian community in 1856, Niagara University is a comprehensive institution, blending the best of a liberal arts and professional education, grounded in our values-based Catholic tradition. Its colleges of Arts and Sciences, Business Administration, Education, Hospitality, Sport and Tourism Management, and Nursing offer programs at the baccalaureate, master’s, and doctoral level.

As the first Vincentian university established in the United States, Niagara prepares students for personal and professional success while emphasizing service to the community in honor of St. Vincent de Paul. Niagara’s institutional commitment to service-learning has led to its inclusion on the President’s Honor Roll for Community Service every year since its inception in 2006, and its recognition with the Carnegie Foundation’s Classification for Community Engagement.