US tax changes for 2023 season – Individual, Estate & Gift taxes

The annual tax filing season began at the end of January and we are delighted to summarize some important changes to 2023 tax year when compared to prior years.

The most notable changes are:

1. The first page of Form 1040 will look slightly different than the prior year. The filing status field has now moved below the taxpayer’s information section. It was the first section on last year’s Form 1040.

2. For 2023, the standard deduction amount has been increased to account for inflation. The amounts are:

• Single or Married filing separately – $13,850 (up from $12,950 for 2022) plus $1,850 for individuals at least 65 years old.
• Married filing jointly or Qualifying surviving spouse – $27,700 (up from $25,900 for 2022) plus $1,500 for each spouse aged 65 or older.
• Head of household – $20,800 (up from $19,400 for 2022) plus $1,850 for individuals at least 65 years old.

3. The 2023 foreign earned income exclusion amount is $120,000 (up from $112,000 for tax year 2022).

4. There is a $100 increase in Additional Child Tax Credit (total $1,600 for 2023 per qualifying child) which is the refundable portion of the child tax credit. However, the overall Child Tax Credit remains at $2,000 per qualifying child (same as 2022).

5. The annual gift exclusion for 2023 is $17,000 (increased from $16,000 in 2022). This means that a US person could gift up to $17,000 to each donee during the calendar year 2023. The gift must be of a “present interest” i.e. no deferred gifts; and generally, gifts in trust are not allowed.

For gifts made to spouses who are not US citizens, the annual exclusion has increased to $175,000 (increased from $164,000 in 2022).

For 2024 planning purposes, the annual gift tax exclusion is $18,000 per donee and for the gifts made to spouses who are not US citizens, the annual exclusion is $185,000.

In addition to the above annual exclusions, the lifetime exclusion amount applicable for gift tax and estate tax for 2023 is $12,920,000 and for 2024 is $13,610,000.

Key point – On November 26, 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount (the basic exclusion amount) in effect from 2018 to 2025 due to the Tax Cuts and Jobs Act, will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.

Please refer to this article for a list of 2024 US deadlines to consider for the 2023 US tax year.

If you have any questions or are planning to make large gifts, please reach out to us to understand the tax implications.