The IRS recently released inflation-adjusted items for the 2023 calendar year for various Internal Revenue Code provisions. The text of Revenue Procedure 2022-38 can be found here. Some of the key numbers for 2023, with the current 2022 levels in parentheses, are:
- The highest 37% income tax bracket starts for married individuals filing jointly at $693,750 ($647,851) and the standard deduction is $27,700 ($25,900)
- The highest 37% income tax bracket starts for single individuals at $578,125 ($539,901) and the standard deduction is $13,850 ($12,950)
- The basic exclusion amount – the estate and gift tax exemption – is $12,920,000 ($12,060,000)
- The annual gift exclusion amount is $17,000 ($16,000)
The most significant change may be the additional $860,000 in estate and gift tax exemption an individual has on January 1, 2023. For married couples, they can give away an additional $1,720,000 after the end of this year. Recall that the exemption levels are currently calculated under the Tax Cuts and Jobs Act of 2017, and they are set to expire at the end of 2025. Absent a law change between now and then, the exemption on January 1, 2026 will revert back to its pre-TCJA level of $5,000,000 indexed for inflation (predicted to be around $6.5MM), about half of what it is now. While you have until the end of 2025 to use this increased exemption before it expires, the sooner gifts are made the more time they have to appreciate outside of your taxable estate, and strategies involving multiple millions of dollars normally take some time to consider and implement.