William Timlen CPA is a Tax Partner in the Real Estate Services Group, with more than 20 years of professional experience. William Timlen specializes in the tax aspects of partnerships and passive loss regulations, including partnership profit, loss allocations, and distributions. In the following article, Mr. Timlen dives into the latest updates to tax laws, examining their implications for individuals and businesses, exploring the shifting landscape of taxation, and providing valuable insights into how recent tax law revisions can affect one’s financial goals and obligations.

Another year, another change to tax laws.
For the average person and business owner, fluctuating tax laws — new tax brackets, joint filing rules, deduction limits — can turn filing into a headache every year. With a slew of recent changes to tax laws, 2023 is no exception.

Overwhelmed? So is everyone else. William Timlen CPA discusses how to navigate all of these recent changes and how they may impact Americans for years to come.

William Timlen CPA Explains the Updates and Changes for 2023

Many factors go into tax law changes, but the federal government is particularly keen to mix things up in order to cover new legislations or cope with an economic crisis, like inflation.

William Timlen CPA notes that many of these changes have been made as a result of the Inflation Reduction Act, a major initiative that went into law last August, along with the SECURE 2.0 Act that was signed into law last December.

As usual, it’s a mixed bag of positives and negatives, ever-changing income brackets, and a few tax breaks. Here are some of the most important tax law changes to keep in mind this year.

Income Tax Brackets and Deductions

The good news is that tax rates themselves are unchanged from 2022. The bad news? For 2023, income tax brackets are far wider than they were last year.

This is because inflation is used to determine bracket adjustments, and the inflation rate rose tremendously from September 2021 through last August.

The rate depends on how one is filing, either as a single filer or jointly as a married couple. Tax rates range from 10% to 37%. In 2023, for example, the 37% rate was used for single filers with taxable income of over $578,125 and joint filers with over $693,750 in taxable income, much higher than the previous year (single: $332,925; joint: $539,900).

William Timlen CPA also notes that the 22% bracket is another great example. This bracket applied to single filers with a taxable income of $50,649, nearly $3,400 more than in 2022.

However, nearly everyone filing taxes in 2023 benefits from higher standard deductions, which means that fewer taxes may be owed if one’s income did not rise by 7% or more.

Inflation Reduction Act Provisions

The Inflation Reduction Act included numerous items related to healthcare, climate change, and even corporate taxation.

Climate change tax credits for homeowners who add wind or solar power systems to their homes have been extended to 2032 with tax credits as high as 30%, reports William Timlen CPA.

Homeowners could also qualify for rebates if they purchase heat pumps, water heaters, and HVAC systems that are rated as energy efficient. There will be a tax credit for alternative power systems of 26% between 2032 and 2034.

Tax credits of $7,500 during a sale for electric vehicles, as well as hydrogen fuel cell cars, were also extended through 2032. Used electric vehicles may also come with a $4,000 tax credit.

Under the Affordable Care Act, health insurance subsidies have been extended through 2025. One of the new laws dictates that drug manufacturers who increase their prices faster than the rate of inflation of Medicare will have to pay a rebate to consumers.

William Timlen CPA says that this year will introduce a new minimum tax of 15% for U.S. corporations that make profits of more than $1 billion. These companies have been forced to pay a 21% tax rate, but many end up either paying no federal income tax or paying less than the dictated tax rate.

A 1% tax for corporations who chose executive stock buybacks also went into effect in 2023.

SECURE 2.0 Act Changes

Sponsors of new 403(b) and 401(k) retirement plans will have to automatically enroll new employees in such plans starting in 2025. Contributions will range from 3-10%, effectively reducing both tax liability and taxable income.

William Timlen CPA says that workers who are 50 and older may now contribute up to $7,500 into company retirement plans, an increase of $1,000 compared to 2022. Penalty-free early withdrawals of up to $22,000 from plans will also go into effect for certain individuals, including those who are terminally ill, domestic abuse victims, or those who need to pay for long-term medical care.

Capital Gains Tax

William Timlen CPA notes that when assets such as cryptocurrency or a stock share are sold, the profits — capital gains — are subject to taxes. The income thresholds for gains that are long-term are charged between 0% to 20%, and these thresholds have increased this year.

For example, the 15% threshold in 2022 for single filers was between $41,676 to $459,750. In 2023, the threshold increased from $44,626 to $492,300.