The last three years have been exceptional in terms of federal tax rates and inflation as a result of the COVID-19 pandemic. To this day, the entire world is still dealing with the effects of the widespread lockdowns that happened in 2020. A lot of the rising prices you’re seeing in grocery stores have been caused by global shortages and low staffing in industries across the globe.
That being said, every year the IRS adjusts more than 60 tax provisions in the U.S. to account for inflation. And in a year with consistently climbing inflation, this is imperative to prevent bracket creep, which occurs when people are either pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation. In short, the IRS protects people whose living costs have risen without any increase in real income.
In this article, we’re going to look at the new federal tax brackets for tax season 2023 so you can be better prepared when filing your federal and Colorado tax return for this year and beyond. We’ll also cover how you can incorporate professional tax services into your finance toolkit to make filing for both business and personal taxes much simpler in the coming years.
The IRS used to use the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017, the IRS now uses the Chained Consumer Price Index to adjust income thresholds, deductions, and credit values. For more information on how the IRS has adjusted tax rates over the years, you can check out this page on their site that dates back to 2017.
Here’s what the IRS has to say about tax season 2023:
“The Inflation Reduction Act extended certain energy-related tax breaks and indexed for inflation the energy efficient commercial buildings deduction beginning with tax year 2023. For tax year 2023, the applicable dollar value used to determine the maximum allowance of the deduction is $0.54 increased (but not above $1.07) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent. The applicable dollar value used to determine the increased deduction amount for certain property is $2.68 increased (but not above $5.36) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.”
The following information has been pulled directly from the IRS website. The tax year 2023 adjustments described below generally apply to tax returns filed in 2024. The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:
Items Unaffected by Indexing
By statute, certain items that were indexed for inflation in the past are currently not adjusted. The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
Yes, you can! There are two ways of reducing your tax bill:
If you're interested in reducing your tax bill in the future, feel free to contact us a 4Corner Business Services. Our team of accounting and tax experts can professionally tune both personal and business taxes so you aren't stuck in a tax bracket you don't belong in.
4Corner Business Services is Denver’s answer to professional tax services. 4Corner’s team of experienced accounting and bookkeeping experts provide you with the business financial consultants you need to conquer tax season 2023. From keeping you up to date on federal tax bracket changes to filing your Colorado tax return, 4Corner’s business tax services are key to navigating tax season stress free. In addition to providing bookkeeping services for small businesses & large businesses, 4Corner offers payroll help, support in choosing & using accounting software, and business financial consulting.
We can provide you with comprehensive, professional tax services so you can better understand your personal or business finances and maximize your profit potential. At 4Corner Business Services, we are the experts who help you understand what financial services you need. If you have any additional questions, feel free to contact us at 4Corner Business Services. You can set up a meeting with Phil Zavala, founder of 4Corner, to get you on the right track.
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