How to Save $$$ with the Latest IRS Tax Brackets for 2023

The Neighborhood Finance Guy website is a treasure trove of financial literacy topics: Budgeting, Millennial Money Management, Tax Brackets, Tax rates, planning strategies, Retirement tips, and more.

In order to win in this game of wealth, you NEED to use all of these strategies. Every year, the rich effectively pay less in taxes. Why?

Because they employ a team of CPAs to read through the new IRS guidelines. They get a better perspective on how to use their money and then they take action.

Even if you don’t have a lot of money, you can still cut down as much as $12,000 using tax allocation strategies. Let’s discuss this.

Table of Contents

IRS Tax Bracket Rates and 2023 Rate Summary:

The IRS released the Federal marginal tax rates and income brackets for 2023 on October 18, 2022. The seven tax rates remain unchanged, while the income limits have been adjusted for inflation.
From its inception, the tax code still remains favorable toward Education, Marriage, Investing, having Dependents, starting a Business, and owning a Home. Use it!
Starting from 2022 to 2030, we might see a shift in investors moving toward infrastructure stocks. Big dollars lead to massive contracts, long-term gains for investors, and tax benefits associated with wealth.
The personal exemption for the tax year 2023 remains at $0, as it was for 2021.
This elimination and limitations on itemized deductions (specifically S.A.L.T.) were provisions in the Tax Cuts and Jobs Act. However, as of March 2022, politicians are pushing for H.R. 6847 to fully restore the state and local tax deduction for individual and joint filers making $400,000 or less in adjusted gross income (or $200,000 or less for married individuals filing taxes separately).
To help cover the rising cost of food, housing, health care, and other essentials, the Social Security Administration announced that beneficiaries would receive an 8.7 percent increase in their monthly payments. For the 70 million Americans who receive Social Security, experts say this significant increase in benefits is much-welcomed.

Breaking Down the Standard Tax Deduction and Other Tax Breaks for FY2023

IRS Tax Changes to the Standard Tax Deduction Per Tax Filing Status

The most significant reference that applies across the board is the changes to the Standard Deduction. No matter where you fall on the income scale, we all get this for starters. Notice that building toward a family unit ends up as a tax savings tool.

For taxable years starting in 2023, the updated standard deduction amounts under IRS Tax Code §63(c)(2) are as follows:

Filing Status	2022 Standard Deduction	2023 Standard Deduction	Noticeable Changes
Married Filing Joint (MFJ)	$25,900	$27,700	Up $1,800
Heads of Household	$19,400	$20,800	Up $1,400
Unmarried Individual (Single)	$12,950	$13,850	Up $900

*upgraded language for single listed as unmarried.

Tax Rate Changes to the Earned Income Tax Credit for Dependents

Generally, the Earned Income Tax Credit (EITC) was drafted to help low- to moderate-income workers and families get a tax break per dependent. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund.

How does this work exactly?

A phaseout applies which reduces the credit depending on your income. Basically, if you make too much money, you don’t qualify. For example, you may be able to take the credit if you have three or more qualifying children and you earned less than $56,838 ($63,398 if married filing jointly).

See bold in the following table.

	One Child	Two Children	Three or More Children	No Children
Earned Income Amount	$11,750	$16,510	$16,510	$7,840
Maximum Amount of Credit	$3,995	$6,604	$7,430	$600
Threshold Phaseout (Single, Surviving Spouse, or Head of Household)	$21,560	$21,560	$21,560	$9,800
Completed Phaseout (Single, Surviving Spouse, or Head of Household)	$46,560	$52,918	$56,838	$17,640
Threshold Phaseout (Married Filing Jointly)	$28,120	$28,120	$28,120	$16,370
Completed Phaseout (Married Filing Jointly)	$53,120	$59,478	$63,398	$24,210

Limitations for Dependents and Adoptions

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,250, or (2) the sum of $400 and the individual’s earned income.

The maximum credit allowed for adoptions for the tax year 2023 is the amount of qualified adoption expenses up to $15,950.

Definitely a Meaningful Improvement from 2022 if you take advantage.

Additional Tax Provisions for the blind and the aged

The additional standard deduction amount for the aged or the blind is +$1,500. Also, the bonus standard deduction amount is increased to $1,850, if the individual is also unmarried and not a surviving spouse.

Education and Credits for Tax Planning Purposes

The $2,500 maximum deduction for interest paid on qualified education loans in 2023.

It begins to phase out for taxpayers with modified adjusted gross income in excess of $70,000 ($145,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $85,000 or more ($175,000 or more for joint returns).

For teachers, the amount of the deduction for expenses paid or incurred in connection with books, supplies, computer equipment (including related software and services), and supplementary materials used in the classroom is $300.

So What’s My Tax Brackets?

Here are the new tax rate brackets for 2023, depending on your income and Federal filing status. Knowing your numbers can help you focus on your AGI and reduction techniques. This is where tax planning begins.

Tax Brackets	Single Tax Payer	Head of Household	Married Filing Jointly	Estates and Trust
10%	Up to $11,000	Up to $15,700	Up to $22,000	Up to $2,900
12%	$11,000 to $44,725	$15,700 to $59,850	$22,000 to $89,450	—
22%	$44,725 to $95,375	$59,850 to $95,350	$89,450 to $190,750	—
24%	$95,375 to $182,100	$93,350 to $182,100	$190,750 to $364,200	$2,900 to $10,550
32%	$182,100 to $231,250	$182,100 to $231,250	$364,200 to $462,500	—
35%	$231,250 to $578,125	$231,250 to $578,100	$462,500 to $693,750	$10,550 to $14,450
37%	Over $578,125	Over $578,100	Over $693,750	Over $14,450

You will have to check up on your state and local taxes as they are likely subject to changes as well. And the IRS also announced the retirement plan contribution changes for 2023.

Final Thoughts on the New Tax Rates and Tax Planning for Next Year

Employer-sponsored plan contributions are up to $2,000 to $22,500 per person. Teachers can still take advantage (if available) of the ability to invest in 457b in conjunction with a 401k or 403b. Effectively allowing them to contribute $45,000 tax deferred.

That’s up to $9,000 in tax savings per year.

A single person can avoid about $32,850 if they play their cards right, while a married couple can avoid taxes north of $65,700. Tax planning is a legit way to keep your hard-earned dollars working for you.

Wait how? See the break-out table below.

Read about the 2023 Contribution Limit Increases (listed below)

Tax Avoidance Vehicle	Single	Married
401k, 403b, 457b contribution limit	$22,500	$45,000
*Catch Up contribution if over 50	$7,500	$15,000
IRA contribution limit	$6,500	$13,000
*Catch up IRA contribution if over 50	$1,000	$2,000
HSA contribution limit	$3,850	$7,700
*Catch Up HSA contribution	$1,000	$2,000

Total (excluding catch-up for over 50)	$32,850	$65,700
Total with catch-up for over 50	$42,350	$84,700

Opportunity to Stack Tax Location Savings in 2023

As price inflation and income stagnation hit record highs, investing your money is the next best step. Those who stay consistent through the recession of 2023 will yield all the rewards by 2025.

That’s how opportunity works.