High inflation expected to lead to big changes in tax brackets and exclusions

Accounting

The highest inflation rate in decades is likely to produce major increases on some tax items, according to predictions from Bloomberg Tax.

The company released its annual projections Tuesday of the estimated inflation-adjusted amounts that the Internal Revenue Service will officially announce ahead of tax season. Bloomberg Tax forecasts that inflation-adjusted amounts in the Tax Code will increase by approximately 7.1% from 2022, more than double last year’s increase of 3%. The company also projects that several key deductions for taxpayers will experience significant year-over-year increases, with the foreign earned income exclusion growing to $120,000 from $112,000 and the annual exclusion for gifts increasing to $17,000 from $16,000, enabling taxpayers to increase their gifts without tax implications.

The report comes the same day the U.S. Bureau of Labor Statistics released its latest inflation figures, reporting that the Consumer Price Index for All Urban Consumers rose 0.1% in August on a

seasonally adjusted basis after being unchanged in July, while over the last 12 months, the all-items index increased 8.3%. That was down slightly from 8.5% the previous month, but the numbers disappointed investors who had been expecting more of an improvement in inflation and worried about the Federal Reserve continuing to raise interest rates. The Dow Jones Industrial Average skidded 1,200 points after the bad news.

The Bloomberg report takes into account the various changes made under the recently enacted Inflation Reduction Act, including the increase in the Section 179D deduction for energy efficient commercial building property if new wage and apprenticeship requirements are met.

“We predict that inflation-adjusted amounts in the tax code will increase significantly in 2023 compared to prior years due to the economic environment,” said Heather Rothman, vice president of analysis and content at Bloomberg Tax, in a statement. “Taxpayers and advisors can use our projections to begin their 2023 tax planning before the IRS publishes the official 2023 inflation-adjusted amounts later this year.”

Individual Income Tax Rate Brackets

 

Married Filing Jointly and Surviving Spouses
2022 Tax Rate Bracket Income Ranges Projected 2023 Tax Rate Bracket Income Ranges
10% – $0 to $20,550 10% – $0 to $22,000
12% – $20,550 to $83,550 12% – $22,000 to $89,450
22% – $83,550 to $178,150 22% – $89,450 to $190,750
24% – $178,150 to $340,100 24% – $190,750 to $364,200
32% – $340,100 to $431,900 32% – $364,200 to $462,500
35% – $431,900 to $647,850 35% – $462,500 to $693,750
37% – $647,850 or more 37% – $693,750 or more

 

 

Unmarried Individuals (other than Surviving Spouses and Heads of Households)
2022 Tax Rate Bracket Income Ranges Projected 2023 Tax Rate Bracket Income Ranges
10% – $0 to $10,275 10% – $0 to $11,000
12% – $10,275 to $41,775 12% – $11,000 to $44,725
22% – $41,775 to $89,075 22% – $44,725 to $95,375
24% – $89,075 to $170,050 24% – $95,375 to $182,100
32% – $170,050 to $215,950 32% – $182,100 to $231,250
35% – $215,950 to $539,900 35% – $231,250 to $578,125
37% – $539,900 or more 37% – $578,125 or more

Standard Deduction

Filing Status

2022

Standard Deduction

Projected 2023

Standard Deduction

Married Filing Jointly/Surviving Spouses $25,900 $27,700
Heads of Household $19,400 $20,800
All Other Taxpayers $12,950 $13,850

 

Alternative Minimum Tax (AMT)

Filing Status

2022

AMT Exemption Amount

Projected 2023

AMT Exemption Amount

Married Filing Jointly/Surviving Spouses $118,100 $126,500

Unmarried Individuals

(other than Surviving Spouses)

$75,900 $81,300
Married Filing Separately $59,050 $63,250
Estates and Trusts $26,500 $28,400
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Bloomberg Tax Leadership Forum in New York

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