Here is how things stack up for 2023 and beyond:
The following tax law provisions apply – the Standard deduction is $13,850 (single filers) and $27,700 (married filing joint filers). These amounts will be indexed for inflation using the governments CPI-U inflation factor. There are no ($0) personal exemptions (basically another deduction). Fewer individuals will benefit from itemizing their deductions. Individuals use the greater of their itemized deductions (medical, taxes, charitable, interest, and other miscellaneous) or standard deductions to compute taxable income (taxable income = income less deductions). The tax itemized deduction limit is $10,000. The child tax credit for dependent children is back to $2,000). Overall, the taxable income upon which federal income taxes are imposed were adjusted for inflation. Federal income taxes are progressive. As taxable income rises the applicable rate on the next $1 of income may rise. The depreciation recovery period is 15 years for qualified improvements to nonresidential real estate and the overall dollar limitation on Section 179 tangible personal property is $1,000,000 subject to business income requirements. Section 179 allows an immediate tax deduction for equipment used in business.
Medical costs must exceed 7.5% of adjusted gross income (“AGI”) rather than 7.5% to become an itemized deduction. The overall limit on flexible spending accounts is $2,500.
The social security portion of FICA payroll tax is 6.2%. The medicare portion of FICA payroll tax is 2.35% (normally the rate is 1.45%) if your salary is in excess of $250,000 for married taxpayers, and in excess for $200,000 for unmarried taxpayers.
The long term capital gains tax rate (currently 15%) for those taxpayers in the 22% and higher tax brackets is 20% if your income exceeds $400,000 ($450,000 for married joint filers).
Itemized deductions. With low interest rates in the housing mortgage industry itemizing is no longer as advantageous. It might make sense to “bunch” charitable deductions normally contributed over two years into a single year, and then alternate years. Or, consider an up front Donor Advised Fund contribution bunching all future year contributions into a single year.
Bonus depreciation has new life and allows immediate deduction of the cost of new trade or business equipment.