Tax deductions allow you to reduce the amount of income that you pay tax on. Each year, tax law changes may affect how many deductions you have available to you and how much you can claim on your tax return. Learn about the tax deductions 2023 saw leave or change.
What's new?
Be better equipped to take advantage of the changes in tax credits and tax deductions for 2023, the taxes you’ll file in 2024. After all, filing taxes early has its benefits.
Learn more about what tax deductions will change in tax year 2023, and whether others will sunset, amount to less, or remain the same but have different qualifications.
What are tax deductions and how do they work?
Tax deductions work by lowering your taxable income for the year. You tally your total taxable income and then reduce this by each deduction you qualify to take. After applying each tax deduction, your taxable income drops and typically results in a lower tax bill.
Which tax deductions are going down or changing?
When preparing your taxes, you generally have two ways to claim tax deductions: take the standard deduction or itemize. You can't do both.
The standard deduction ensures that all taxpayers have at least some income that does not fall subject to federal income tax. Each year, the standard deduction generally increases; 2023 is no exception.
In 2023, the standard deduction amounts to $13,850 for single taxpayers and married taxpayers who file separate returns, while married couples filing jointly can claim an amount twice that size at $27,700. Heads of household can claim a standard deduction of $20,800.
Another tax deduction changing in 2023 are the contribution limits to health savings accounts. These accounts act as a tax-deferred way to help cover the healthcare costs paid as part of carrying coverage under a high deductible health insurance plan. You can deduct money you place into an HSA, within certain limits.
For 2023, the IRS limit comes to $3,850 for singles or $7,750 for families. If you're over age 55, you can contribute an additional $1,000.
When paying for tuition, fees, and other qualifying expenses to enroll in higher education courses, you may have the ability to claim either the American Opportunity tax credit (AOTC) or the Lifetime Learning Credit (LLC).
Have any tax deductions remained the same but adjusted their qualifications?
Many tax deductions for 2023 will remain the same as the previous year, though the qualifications for them might be different:
- Traditional individual retirement accounts (IRA): If you (or your spouse) are covered by an employer-sponsored retirement plan, there are limits to the deduction of IRA contributions. Tax year 2023 deductions for contributions phase out between AGIs of $116,000 to $136,000 for a married filer covered by an employer-sponsored retirement plan, $204,000 to $214,000 for a married filer whose spouse is covered by an employer-sponsored retirement plan and $73,000 to $83,000 for single filers covered by an employer-sponsored retirement plan.
- Roth IRA: Likewise, for Roth IRA contributions, their 2023 income phaseouts increase to AGIs of $218,000 to $228,000 for married filers and $138,000 to $153,000 for single filers.
- 401(k) and 403(b) plans: The general limit on total employer and employee contributions for 2023 $66,000.
- Health savings accounts: If you have a conforming high deductible health plan and can contribute to a health savings account for qualifying medical expenses down the road. The contribution limits increased to $3,850 for self-only coverage and $7,750 for family coverage for 2023.
- AMT exemption: The Alternative Minimum Tax exemption amount for 2023 for single filers is $81,300 and begins to phase out at $578,150. The 2023 amounts for those filing joint returns are $126,500 with the exemption beginning to phase out at $1,156,300.
- Foreign earned income exclusion: The foreign earned income exclusion increases to $120,000 in 2023.
- Educator expense deduction: For tax year 2023, the educator expense deduction is $300.
- Mortgage debt forgiveness: In most instances, forgiven debt is counted as taxable income because removing liabilities from your name amounts to the same as receiving income in the eyes of the IRS. Congress made a special exception for forgiven mortgage debt of up to $2 million if used to buy, build, or substantially improve your principal residence. The Consolidated Appropriations Act, 2021 reduced this amount to $750,000 ($375,000 if married filing separately) and extended it through the end of 2025.
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