Popular financial media outlets like Forbes, CNBC, Fox Business, and others are reporting increased Standard Deductions from the IRS for 2023. Here’s what you need to know about them.
- The deductions are for the fiscal year 2023. That means they won’t apply to your filing for 2022. You’ll have to wait until you’re filing in 2024 to get those numbers.
- The amount of the Standard Deduction will be going up nicely:
a. Those who file as Single or as Married Filing Separately will see an increase from $12,950 to $13,850.
b. Those who file as Married Filing Jointly or as Surviving Spouse will see an increase from $25,900 to $27,700.
c. Heads of Household will see an increase from $19,400 to $20,800.
- The Standardized Deduction is still the simplest means of reducing your taxable income, but not always the most effective. A large number of expenses can be written off as itemized deductions—most notably state and local taxes, charitable contributions, and out-of-pocket medical expenses. Keep in mind, though, you need receipts for each of these.
Those are the main facts. But as with everything in the world of finance, there are a few additional notes.
- You probably can’t claim the full standard deduction if you’re considered someone else’s dependent. It depends on your actual income, but the minimum is $1150 in 2022 and $1250 in 2023.
- You can’t take the Standard Deduction at all in a few cases: if you’re a non-resident alien or dual-status alien, even for part of the year; if you’re married and your spouse itemizes deductions, even if you file separately; if you’re filing as a trust or partnership; or if for some reason you’re filing for less than a full year.
- Taxpayers who are over 65 can claim an additional Standard Deduction per person. In 2022, that amount was $1400 for married taxpayers and $1750 for single or head of household (with an additional allowance for the blind). In 2023, that will increase to $1500 and $1850 respectively.
So… Standard deduction or Itemized?
The obvious answer is to take whichever will minimize your tax bill. But there might be limitations on how much you can claim. Unless you had a large amount of unreimbursed medical and dental expenses, paid significant interest and taxes on your home, had a large loss of property through casualty or theft, or made large contributions to qualified charities, it’s a tough question. Your best bet is as always to consult with a qualified tax professional.
More information can be found on the IRS’ website: IRS provides tax inflation adjustments for tax year 2023 | Internal Revenue Service