To deal with inflation, the IRS makes adjustments each year. These often relate to the tax brackets, retirement contribution limits, and other related provisions. With inflation rates in the past year being higher than they have been in decades, many are expecting the IRS to make “larger-than-average” adjustments for the next year.
While Americans have had to deal with the high prices for years, the IRS is now looking to see what adjustments they will need to make for 2023. These adjustments will have to deal with the tax brackets, retirement, 401(k), contributions, and more.
These yearly changes often result in people going into a higher tax bracket due to inflation according to Kyle Pomerleau, senior fellow and federal tax expert with the American Enterprise Institute. Pomerleau has often added that this might not be a good thing as these higher tax brackets will not necessarily mean that Americans are making a higher income and living a better quality of life.
Typically, the adjustments for inflation by the IRS are published in October and November and according to Pomerleau’s predictions, he expects an increase of up to 7% in many of the provisions for 2023. This he explains is the result of the higher-than-usual inflation.
These increases will lead to both higher tax brackets as well as larger deductions. It is also possible that exemptions are also going to be higher, with more write-offs available.
According to his predictions, the estate tax exemptions could go up to 12.92 million and $25.84 million for single and joint filers respectively. This is an increase from the current rates of $12.06 million and $24.12 million for single and joint filers.
All of this though might not necessarily mean smaller tax bills for 2023.