There are many noteworthy tax changes and updates that will impact both individual taxpayers and businesses alike in 2023.
First-year bonus depreciation isn’t as valuable in 2023 as it was for the past few years. For 2022, businesses were able to deduct the full cost of new and used qualifying assets with lives of 20 years or less. For 2023, the 100 percent bonus depreciation allowance is now reduced to 80 percent and will continue to decrease by 20 percent each subsequent year until completely phased-out.
The temporary 100 percent write-off for business meals provided by a restaurant has expired. As of January 1, 2023, 50 percent of the cost of most business meals is deductible, reverting back to the pre-Covid-19 rules.
As of January 1, 2023, the new age for taking a required minimum distribution (RMD) rises to 73 for owners of traditional IRAs, 401(k)s and other workplace retirement plans. If you turn 73 in 2023, you must take your first RMD by April 1, 2024. However, taxpayers that work past 73 can generally delay taking RMDs from their current employer’s 401(k) until they retire.
The penalty for failing to take an RMD is now lower than in past years. The excise tax for such failure is 25 percent of the missing RMD amount, which is down from 50 percent. Additionally, the penalty goes down to 10 percent for failures that are corrected within a timely manner.
For 2023, the standard mileage rate for business driving rose to 65.5 cents per mile and for medical related travel to 22 cents per mile.
The new 1099-K rules that lower the filing threshold to $600 for third-party settlement networks such as PayPal, Square and Venmo to name a few, are now set to kick in for 2023. The lower filing threshold received a lot of criticism, so the IRS previously delayed the implementation by one year. This means that more taxpayers than ever will receive 1099-K forms early next year that they will need when filing their 2023 tax returns.
Clean Vehicle Tax Credit
For 2023 through 2032, the maximum tax credit remains $7,500 for buying a new electric vehicle (EV), but the factors for figuring the credit are new. To be eligible for the full credit, EVs put in use after April 17, 2023 must meet a critical minerals requirement and a battery component rule. If only one factor is met, then the credit is capped at $3,750. Eligibility for the credit for EVs put in use before April 18 is based solely on the vehicle’s battery capacity. Also, the final assembly of the EV must take place in North America.
Furthermore, there are two new rules to consider when determining eligibility:
- The manufacturer’s suggested retail price can’t exceed $55,000 for sedans and $80,000 for vans, SUVs & pickup trucks; and
- The taxpayer’s adjusted gross income cannot exceed $300,000 for joint filers, $225,000 for head-of-household filers and $150,000 for single filers.
View the list of eligible clean vehicles that qualified manufacturers have indicated meet the requirements to claim the clean vehicle tax credit:
Energy-Efficient Home Improvement Credit
The tax credit for installing energy-efficient improvements in your home is now bigger and better for 2023 through 2032. The credit increases to 30 percent of the cost of certain types of insulation, boilers, air-conditioning systems, windows, doors, etc. added to your residence with a new $1,200 annual tax credit limit. This credit is limited to $500 for exterior doors and $600 for exterior windows and skylights; while increasing to $2,000 for a hot water boiler or an electric or natural gas heat pump.
Estate and Gift Taxes
The lifetime estate and gift tax exemption for decedents that die during 2023 jumps from $12,060,000 to $12,920,000. The annual gift tax exclusion for 2023 also rises from $16,000 to $17,000 per donee without having to file a gift tax return or tap your lifetime estate and gift tax exemption.
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