Related Tax Information for 2023 That Could Impact You*
With a new year comes change, including updates from the IRS to the standard deduction and charitable contribution limits. These changes are a not-so-subtle reminder from the IRS of how important it is to incorporate a charitable-giving strategy into any wealth or tax planning for the year. Depending on what 2023 will look like for you, there may be ways to make an extraordinary impact on the causes you care about while potentially lessening your taxable liability. Below are the most notable IRS changes to the standard deduction, estate tax, and more from 2022 to 2023.
2023 Tax Bracket & Federal Income Tax Rates:
2023 Standard Deductions
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up from $25,900 the prior year.
For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up from $12,950 the prior year.
And for heads of household, the standard deduction will be $20,800 for tax year 2023, up from $19,400 for tax year 2022.
Marginal Tax Rates
For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 (or $693,750 for married couples filing jointly). This income threshold is adjusted from $539,900 (or $647,850 for married couples filing jointly) in tax year 2022.
Alternative Minimum Tax
The alternative minimum tax (AMT) exemption amount for 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly, for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
Estate Tax
Estates of decedents who pass away during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who passed away in 2022.
Gift Exclusion
The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022. The charitable contribution limit for a gift of cash to a public charity or donor-advised fund remains 60% of one’s adjusted gross income (AGI), and the limit for non-cash gifts remains 30% of AGI.
* Courtesy of The Signatry, by Jake Tometich used with permission and originally posted: https://thesignatry.com/charitable-giving-taxes-2023-changes/
SECURE 2.0 Act: Will It Affect You?1
SECURE 2.0, the sequel to the SECURE Act of 2019, offers more options for people, including those approaching retirement and those with student-loan debt, to save more for their retirement. There are also opportunities for those who are charitably minded.
Rarely does legislation get a follow-up—much less more benefits—for a larger portion of Americans. But this is the case with the SECURE 2.0 Act of 2022, passed by Congress on December 23 and signed by President Biden December 29, 2022.
The new law provides additional benefits for both the workforce and retirees. The provisions can also enable generous givers to be more charitable while lowering taxes. You could be one of many who benefit now.
Background on SECURE 2.0
SECURE 2.0 is the successor to the Setting Every Community Up for Retirement Enhancement Act – sometimes referred to as SECURE 1.0—which was enacted in 2019. That law focused on broadening the access to tax-advantaged accounts, among other impacts to retirement planning.
Shortly after passing SECURE 1.0, Congress began work on SECURE 2.0, but it was delayed in the legislature. The House passed a version in March 2022, while the Senate sought to align with its own changes for much of the year. They finally came to an agreement in late 2022.
Key Provisions
Required minimum distributions2
SECURE 1.0 boosted the required minimum distribution (RMD) to age 72; SECURE 2.0 boosts it up again—first to 73, then to 75, depending on your birth date. The new legislation also reduces the penalty, currently 50%, for failing to take an RMD down to 25%. “These changes could be welcome news for our retirees who may find that their RMD could put them in a higher tax bracket than they initially planned for,” says Heather Winston, a senior planning-solutions director for Principal®. [Editor’s note: This is also when one can begin to consider using IRA funds for charitable purposes.]
Part-time work and retirement3
Some savings plans are not available to those who work part time, but SECURE 2.0 provides that for anyone who works between 500 and 999 hours each year for two consecutive years to be eligible to enroll in their company’s retirement plan.
Traditional IRA Rollover4
The SECURE 2.0 Act created a new charitable gift opportunity. Donors can now roll over a traditional IRA into a charitable gift annuity (CGA), a standard unitrust or an annuity trust. This is a creative new opportunity because many business owners over age 70½ have a traditional IRA. [Editor’s note, This is a one-time $50,000 distribution from a person’s IRA to fund a CGA. Consult your tax advisor to see if this is a good option for you.]
Other Provisions
Catch-up contributions (available to people ages 60-63) are increased by SECURE 2.0).
- Auto-enrollment in employer-sponsored retirement plans.
- Emergency savings (allows employers to offer savings accounts).
- 529 rollovers to Roth IRAs.
- Student-loan debt payments.
More SECURE 2.0 Provisions
The list is long and includes things such as additional options for minimal rollovers, donations to charities from retirement plans and a national clearinghouse for those who may have lost track of retirement savings they once had. Seek counsel first from your financial-planning specialist and/or a tax advisor. Additional information is available online.
The provisions in SECURE 2.0 affect many Americans, from those decades from retirement to those beginning or in retirement. Consult your tax-planning professionals to assess the impact on you and your unique situation.
This material is intended only for educational purposes not to be taken as a recommendation. Our team of charitable planning specialists can come alongside your team of advisors and help ensure that you are stewarding well all that God has entrusted to you. You can reach out to us today at: info@crufoundation.org or call toll-free 800-449-5454.
1 Content adapted from post 01.03.2023 on Principle.com
2 Ibid.
3 Ibid.
4 Charles Schultz, JD, AEP® 02.23.2023, CrescendoInteractive.com