Accounting & Tax Services, Inc.

05/18/2023

Check the Status of a Tax Refund Using This IRS Tool

Taxpayers can start checking their tax refund status 24 hours after e-filing their 2022 federal income tax return. The easiest and most convenient way to do this is by using the "Where's My Refund?" tool on the IRS website. The tool provides a personalized refund date after the return is processed and a refund is approved.

There are two ways to access the "Where's My Refund?" tool - visiting IRS.gov or downloading the IRS2Go app. To use the tool, taxpayers will need the following information:

Their Social Security number or Individual Taxpayer Identification Number

Tax filing status

The exact amount of the refund claimed on their tax return

The tool displays progress in three phases: when the return was received, when the refund was approved, and when the refund was sent. When the status changes to approved, it means that the IRS is preparing to send the refund as a direct deposit to the taxpayer's bank account or directly to the taxpayer in the mail, by check, to the address used on their tax return.

The IRS updates the "Where's My Refund?" tool once a day, usually overnight, so taxpayers don't need to check the status more often than that. Calling the IRS won't speed up a tax refund. The information available on "Where's My Refund?" is the same information available to IRS telephone assistors.

Taxpayers should remember to allow time for their financial institution to post the refund to their account or for the refund to be delivered by mail.

05/12/2023

What Are Estimated Tax Payments?

Estimated tax is the method used to pay tax on income not subject to withholding, such as income from self-employment, interest, dividends, alimony, and rent and gains from the sale of assets, prizes, and awards. You also may have to pay an estimated tax if the income tax being withheld from your salary, pension, or other income is insufficient. Here's what you should know about estimated tax payments:

Filing and Paying Estimated Taxes
Both individuals and business owners may need to file and pay estimated taxes, which are paid quarterly. The first estimated tax payment of the year is ordinarily due on the same day as your federal tax return is due.

If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.

If you are filing as a sole proprietor, partner, S corporation shareholder, or self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you might have to pay estimated tax for the current year, but if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

Special rules apply to farmers, fishermen, certain household employers, and certain higher taxpayers. Please call the office for assistance if any of these situations apply to you.

Who Does Not Have to Pay Estimated:

You do not have to pay estimated tax for the current year if you meet all three of the following conditions:

You had no tax liability for the prior year
You were a U.S. citizen or resident for the whole year
Your prior tax year covered a 12-month period
If you receive salaries and wages, you can avoid paying estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold. You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.

Calculating Estimated Taxes

To figure out your estimated tax, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. If you estimated your earnings too high, complete another Form 1040-ES, Estimated Tax for Individuals, worksheet to re-figure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.

Try to estimate your income as accurately as possible to avoid penalties due to underpayment. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholding and credits or if they paid at least 90 percent of the tax for the current year or 100 percent of the tax shown on the return for the prior year, whichever is smaller.

When figuring out your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year's federal tax return as a guide, and use the worksheet in Form 1040-ES to figure your estimated tax. However, you must adjust to any changes in your situation as well as recent tax law changes.

Estimated Tax Due Dates

For estimated tax purposes, the year is divided into four payment periods, each with a specific payment due date. For the 2023 tax year, these dates are April 18, June 15, September 15, and January 16, 2024.

If you file your 2023 tax return by January 31, 2024, and pay the entire balance due with your return, you do not have to pay estimated taxes in January.

If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

Electronic Federal Tax Payment System

The easiest way for individuals and businesses to pay their estimated federal taxes is to use the Electronic Federal Tax Payment System (EFTPS). Make ALL of your federal tax payments, including federal tax deposits (FTDs), installment agreements, and estimated tax payments, using EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc., you can, as long as you have paid enough by the end of the quarter. Using EFTPS, you can access a history of your payments to know how much and when you made your estimated tax payments.

02/16/2023

Standard vs. Itemized Deductions

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction - but not always. Let's look at a few details about these two options.

Standard deduction

The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4.

Not all taxpayers can take a standard deduction. Those taxpayers include:

A married individual filing as married filing separately whose spouse itemizes deductions - if one spouse itemizes on a separate return, both must itemize.
An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
Itemized deductions

Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

State and local income or sales taxes
Real estate and personal property taxes
Home mortgage interest
Mortgage insurance premiums on a home mortgage
Personal casualty and theft losses from a federally declared disaster
Gifts to a qualified charity
Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Some itemized deductions, such as the deduction for taxes, may be limited.

02/14/2023

Do You Need To File a 2022 Tax Return?

Most people file a tax return because they have to, but even if you don't, you might be eligible for a tax refund and not know it. The tax tips below should help determine whether you must file a tax return this year.

General Filing Rules
Whether you need to file a tax return depends on several factors: the amount of your income, your filing status, and your age. For example, if you're single and 24 years old, you must file if your income is at least $12,950. If you are 65 or older, income thresholds are higher ($14,700 in 2022 for single filers). Other tax rules may apply if you're self-employed or dependent of another person.

Employment Tax Withheld or Paid
If you held a job and answer "yes" to any of these questions, you could be due a refund, but you have to file a tax return to receive it:

Did your employer withhold federal income tax from your pay?
Did you make estimated tax payments?
Did you overpay last year, and have it applied to this year's tax?
Eligibility for Certain Tax Credits
Premium Tax Credit. If you, your spouse, or a dependent was enrolled in healthcare coverage purchased from the Marketplace in 2022, you might be eligible for the Premium Tax Credit - but only if you chose to have advance payments of the premium tax credit sent directly to your insurer during the year. However, you must file a federal tax return and reconcile any advance payments with the allowable premium tax credit.

Earned Income Tax Credit. Did you work and earn less than $59,187 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,935. If you qualify, file a tax return to claim it.

Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don't get the full credit amount, you may qualify for the Additional Child Tax Credit and receive a refund even if you do not owe any tax.

American Opportunity Tax Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don't owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.

Health Coverage Tax Credit. If you, your spouse, or a dependent received advance payments of the health coverage tax credit, you will need to file a 2022 tax return. Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments, shows the amount of the advance payments.

Other Situations
You must file a return in other situations as well, including, but not limited to, the following situations:

You owe special taxes such as the alternative minimum tax (AMT), additional tax on qualified plans such as an individual retirement arrangement (IRA), another tax-favored account, or household employment taxes. However, if you are filing a return only because you owe these taxes, you can file Schedule H, Household Employment Taxes, by itself.
You (or your spouse, if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
You had net earnings from self-employment of at least $400.
You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

02/13/2023

Tax Breaks for Older Adults and Retirees

Everyone wants to save money on their taxes, and retirees and older adults are no exception. If you're 50 or older, here are six tax tips that could help you do just that.

1. Standard Deduction for Seniors
If you and your spouse are 65 or older and do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if you (or your spouse) are blind.

2. Credit for the Elderly or Disabled
If you and your spouse are either 65 years or older - or under age 65 years old and are permanently and totally disabled - you may be able to take the Credit for Elderly or Disabled. The credit is based on your age, filing status, and income.

You may only take the credit if you meet the following requirements:

The amount on Form 1040 or 1040-SR, line 11 is less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

and

The nontaxable part of your Social Security or other nontaxable pensions, annuities, or disability income is:

Less than $5,000 (single, head of household, or qualifying widow/er with dependent child);
$5,000 (married filing jointly and only one spouse qualifies);
$7,500 (married filing jointly and both qualify); or
$3,750 (married filing separately and lived apart from your spouse the entire year).
3. Retirement Account Limits Increase
Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $27,000 in 2022 ($30,000 in 2023). The amount includes the additional "catch up" contribution ($6,500 in 2022 and $7,500 in 2023) for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.

4. Early Withdrawal Penalty Eliminated
If you withdraw money from an IRA account before age 59 1/2, you generally must pay a 10 percent penalty; however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty. However, you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.

5. Social Security Benefits Generally Not Taxable
Americans can sign up for social security benefits as early as age 62 or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). Generally, you pay federal income taxes on your Social Security income only if you have other substantial income in addition to your benefits.

Most retirees do not pay income tax on their social security benefits. Some, however, do. The more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.

6. Higher Income Tax Filing Threshold
Taxpayers who are 65 and older are allowed an income of $1,750 more ($2,800 married filing jointly and both spouses are 65 or older) before they need to file an income tax return. In other words, older taxpayers age 65 and older with an income of $14,700 ($28,700 married filing jointly - both spouses over age 65) or less may not need to file a tax return.

02/12/2023

Taxable vs. Nontaxable Income

Are you wondering if there's a hard and fast rule about what income is taxable and what income is not? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there's more to it than that.

Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income
Here are some types of income that are usually not taxable:

Gifts and inheritances
Child support payments
Welfare benefits
Damage awards for physical injury or sickness
Cash rebates from a dealer or manufacturer for an item you buy
Reimbursements for qualified adoption expenses
In addition, some types of income are not taxable except under certain conditions, including:

Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.
If you received a state or local income tax refund, the amount might be taxable. You should have received a 2022 Form 1099-G from the agency that made the payment to you. If you didn't get it by mail, the agency might have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.
Important Reminders About Tip Income
If you get tips from customers, you must pay federal income tax on any tips you receive. The value of noncash tips, such as tickets, passes, or other items of value, are also subject to income tax. You must include the total of all tips you received during the year on your income tax return, such as tips received directly from customers, tips added to credit cards, and your share of tips received under a tip-splitting agreement with other employees.

Bartering Income is Taxable
Bartering is trading one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no cash exchange; however, if you barter, the value of products or services from bartering is considered taxable income by the IRS.

Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get. The tax rules may vary based on the type of bartering. Barterers may owe income taxes, self-employment taxes, employment taxes, or excise taxes on their bartering income. How you report bartering on a tax return also varies. For example, if you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

02/07/2023

Great references for small businesses.

Tax Tip 2023-15, February 7, 2023 — Whether someone travels for work once a year or once a month, figuring out travel expense tax write-offs might seem confusing. The IRS has information to help all business travelers properly claim these valuable deductions.

01/16/2023

Highlights of the Secure 2.0 Act of 2022

The $1.66 trillion Consolidated Appropriations Act, 2023, was signed into law on December 29, 2022, by President Biden. Included in the 4,155-page bill is the SECURE Act 2.0 of 2022, which contains a number of tax provisions relating to retirement.

Let's take a look at the highlights:

Automatic Enrollment in Retirement Plans
Employers starting new retirement plans in tax year 2025 or later would be required to automatically enroll their employees in 401(k) and 403(b) plans. Employees would set aside not less than 3 percent but not more than 10 percent of their paycheck. There would be an automatic one percent increase yearly until the employee participant reaches 10 percent. Employees can set aside as much as 15 percent. The new tax provision doesn't apply to businesses in existence for less than three years. Furthermore, existing businesses with retirement plans already in place, employers with fewer than ten employees, and church and government plans are exempt from the new law.

Starter 401k Plans. For tax years after December 31, 2023, the new law allows employers with no retirement plans to establish starter 401k plans. Workers would be enrolled automatically, contributing at least 3 percent. Catch-up contributions are allowed for workers aged 50 and up.

Federal Match for Saver's Credit
Starting in 2027, lower to middle-income taxpayers contributing to a traditional IRA or a 401(k) at their workplace would be eligible for a 50 percent matching contribution of up to $2,000 from the federal government. The federal matching contribution will be directly deposited into their IRS or 401(k) account. Savers must be 18 or older and contribute more than $100 to receive the match. Dependents, full-time students, and nonresident aliens (unless treated taxable as a resident) are not eligible. The match phases out between $41,000 and $71,000 for joint filers, $20,500 to $35,500 for single filers, and $30,750 to $53,250 for heads of households.

Emergency Savings Funds and 401k Withdrawals
Emergency Savings Plans. Employers can now set up emergency savings plans for employees linked to their retirement accounts. Employees would be allowed to contribute 3 percent of their salary or a maximum of $2,500 to the emergency account, which will be a Roth account and is not subject to the 10 percent additional tax for early withdrawals.

401k Withdrawals for Emergency Personal Expenses. Another option employers can offer is a one-time penalty-free withdrawal from their employees' 401k plans. Employees would be permitted one (1) distribution per calendar year for a maximum amount of $1,000. This tax provision will go into effect in 2024.

Penalty-free Retirement Plan Withdrawals. Starting in 2024, domestic abuse victims, individuals with terminal illness, and individuals taking distributions in connection with qualified disasters are no longer subject to the 10 percent additional tax on early withdrawals.

Student Loan Payments Count as Retirement Contributions
Starting in 2024, employees that make student loan payments to loan servicers qualify for matching contributions from their employer to a retirement plan - even if the employees do not make contributions of their own.

Part-time Workers
Starting in 2025, part-time workers are eligible to participate in their employer's 401(k) retirement plans after two years instead of three (SECURE Act 2.0, 2019). Each 12-month period for which the employee has more than 500 hours of service shall be treated as a year of service.

IRA Catch-up Contributions
Indexed to inflation. For taxable years beginning after December 31, 2023, the $1,000 catch-up contribution amount will be indexed to inflation with the amounts rounded down to the nearest multiple of $100.

Higher catch-up contributions. Starting in taxable years after December 31, 2024, catch-up contributions for workers aged 60, 61, 62, and 63 increase to $10,000 or 150 percent of the regular catch-up amount that year, whichever is greater. Cost of living adjustments will be in effect for years after December 31, 2024.

Required Minimum Distributions (RMDs) Increase to Age 73
For individuals who reach age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age for starting RMDS is 73. For individuals who attain age 74 after December 31, 2032, the applicable age is 75. The new rules apply to distributions required to be made after December 31, 2022, for individuals who attain age 72 after such date.

To summarize: Taxpayers born between 1951 and 1959 will begin RMDs at age 73. Those born in 1960 or later will begin taking RMDs at age 75.

Roth IRAs
New Rules for Roth 401ks. Effective January 1, 2023, employers can let employees choose between having a company match in a Roth 401k or a regular 401k. Under current law, employer matching contributions must go into a regular 401k even if taxpayers put money in their Roth 401k.

Elimination of RMDs for Roth 401ks. Starting in 2024, RMDs are eliminated for Roth accounts in qualified employer plans. While Roth IRAs are not subject to RMDS, Roth 401ks are subject to RMD rules, i.e., distributions must be taken at age 72 (although they are tax-free).

Catch-up Contributions for Higher Earners. Starting in 2024, catch-up contributions for workers aged 50 and up who earn more than $145,000 must be put into a Roth retirement account rather than a traditional pretax retirement account such as a 401k. The $145,000 threshold amount will be indexed for inflation starting in 2025 and rounded down to the lowest multiple of $5,000. Distributions will generally be excluded from income.

Special Rules for 529 rollovers. Starting in 2024, 529 college savings plans maintained for at least 15 years can be rolled over to a Roth IRA. Any contributions (and earnings on those contributions) to the 529 plan made within the last 5 years are not eligible. The rollover must be trustee to trustee, and there is a $35,000 lifetime limit per account beneficiary. Rollovers are subject to Roth IRA annual contribution limits.

New Rules for Qualified Charitable Distributions (QCDs)
The maximum annual amount (currently $100,000) an individual donor can contribute per calendar year is indexed to inflation starting in 2024. As a reminder, QCDs are a direct distribution from an IRA to a qualified charity and count toward satisfying required minimum distributions (RMDs) for the year, as long as certain rules are met.

01/15/2023

Businesses: Important Tax Changes in 2023

Here's what small business owners need to know about tax law changes and inflation adjustments for the year ahead.

Standard Mileage Rates
In 2023, the rate for business miles driven is 65.5 cents, up 3 cents from the midyear increase setting the rate for the second half of 2022

Section 179 Expensing
In 2023, the Section 179 expense deduction increases to a maximum deduction of $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $28,900.

Bonus Depreciation
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.

Qualified Business Income Deduction
Eligible taxpayers can deduct up to 20 percent of certain business income from qualified domestic businesses and certain dividends. To qualify for the deduction, business income must not exceed a certain dollar amount. In 2023, these threshold amounts are $182,100 for single and head-of-household filers and $364,200 for married taxpayers filing joint returns.

Research & Development Tax Credit
Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

Employee Health Insurance Expenses
For taxable years beginning in 2023, the dollar amount of average wages is $30,700 ($28,700 in 2022). This amount is used for limiting the small employer health insurance credit and determining who is an eligible small employer for the credit.

Business Meals and Entertainment Expenses
Taxpayers who incur food and beverage expenses associated with operating a trade or business can deduct 50 percent of these expenses in 2023.

Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees in 2023, the maximum monthly limitation for transportation in a commuter highway vehicle, as well as any transit pass, is $300. The monthly limitation for qualified parking is $300.

While this checklist outlines important tax changes for 2023, additional changes in tax law are likely to arise during the year ahead.

01/14/2023

Individual Taxpayers: Tax Changes for 2023

Every year, it's a sure bet that there will be changes to current tax law, and this year is no different. From standard deductions to health savings accounts and tax rate schedules, here's a checklist of tax changes to help you plan the year ahead.

Individuals
In 2023, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2022; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through tax year 2025.

Standard Deduction
In 2023, the standard deduction increases to $13,850 for individuals (up from $12,950 in 2022) and to $27,700 for married couples (up from $25,900 in 2022).

Alternative Minimum Tax (AMT)
In 2023, AMT exemption amounts increase to $81,300 for individuals (up from $75,900 in 2022) and $126,500 for married couples filing jointly (up from $118,100 in 2022). Also, the phaseout threshold increases to $578,150 ($1,156,300 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation.

"Kiddie Tax"
For taxable years beginning in 2023, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax" is $1,250. The same $1,250 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2023 must be more than $1,250 but less than $12,500.

Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay the account owner's current or future medical expenses, their spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2023, a qualifying HDHP must have a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $7,500 for self-only coverage and $15,000 for family coverage.

Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): The Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2023, the term "high deductible health plan" for self-only coverage means a health plan that has an annual deductible that is not less than $2,650 and not more than $3,950, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,300.
Family coverage. For taxable years beginning in 2023, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $5,300 and not more than $7,900, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $9,650.

AGI Limit for Deductible Medical Expenses
In 2023, the deduction threshold for deductible medical expenses is 7.5 percent of adjusted gross income (AGI), made permanent by the Consolidated Appropriations Act, 2022.

Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2023, the limitation is $480. Persons more than 40 but not more than 50 can deduct $890. Those more than 50 but not more than 60 can deduct $1,790, while individuals more than 60 but not more than 70 can deduct $4,770. The maximum deduction is $5,960 and applies to anyone more than 70 years of age.

Medicare Taxes
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2023, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the tax.

Long-Term Capital Gains and Dividends
In 2023, tax rates on capital gains and dividends remain the same as 2022 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have increased: the maximum zero percent rate amounts are $44,625 for individuals and $89,250 for married filing jointly. For an individual taxpayer whose income is at or above $492,300 ($553,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $44,625 and below $492,300 for single filers).

Estate and Gift Taxes
For an estate of any decedent during calendar year 2023, the basic exclusion amount is $12.92 million, indexed for inflation (up from $12.06 million in 2022). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $17,000.

Individuals - Tax Credits
Adoption Credit
In 2023, a nonrefundable (only those individuals with tax liability will benefit) credit of up to $15,950 is available for qualified adoption expenses for each eligible child.

Child Tax Credit
For 2023, the child tax credit reverts to $2,000 per child, age 17 or younger. The refundable portion of the credit increases to $1,600 in 2023, so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).

Child and Dependent Care Tax Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2023. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners (AGI of $43,000 or more), the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. This tax credit is nonrefundable.

Clean Vehicle Tax Credit
The Inflation Reduction Act makes several additional changes to the electric vehicle tax credit that will take effect starting January 1, 2023. Vehicles eligible for the Clean Vehicle Tax Credit now include both EVs (electric vehicles) and FCEVs (fuel cell electric vehicles) but must meet two requirements to be eligible for the tax credit. The critical minerals component refers to sourcing requirements for critical mineral extraction, processing, and recycling. The battery components requirement refers to vehicles that include a traction battery that has at least seven kilowatt-hours (kWh).

Vehicles that meet critical mineral requirements are eligible for $3,750 tax credit, and vehicles that meet battery component requirements are eligible for a $3,750 tax credit. Vehicles meeting both requirements are eligible for a nonrefundable tax credit of up to $7,500; however, there are additional additional requirements regarding manufacturer suggested retail price (MSRP) thresholds for modified adjusted gross income (MAGI).

Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credit
The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. Both credits phase out for taxpayers with modified adjusted gross income between $80,000 and $90,000 (between $160,000 and $180,000 for joint filers). To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).

While the phaseout limits for Lifetime Learning Credit increased, taxpayers should note that the qualified tuition and expenses deduction was repealed starting in 2022.
Interest on Educational Loans
In 2023, the maximum deduction for interest paid on student loans is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $75,000 ($150,500 for joint filers) and is completely eliminated for taxpayers with modified adjusted gross income of $90,000 ($185,000 joint filers).

Individuals - Retirement
Contribution Limits
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $22,500. Contribution limits for SIMPLE plans also increase to $15,500. The maximum compensation used to determine contributions increases to $330,000 (up from $305,000 in 2022).

Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $73,000 and $83,000.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $116,000 and $136,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $218,000 and $228,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $138,000 and $153,000 for singles and heads of household, up from $129,000 to $144,000. For married couples filing jointly, the income phase-out range is $218,000 and $228,000, up from $204,000 to $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver's Credit
In 2023, the AGI limit for the Saver's Credit (also known as the Retirement Savings Contribution Credit) for low and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000 in 2022; $54,700 for heads of household, up from $51,000 in 2022; and $36,500 for singles and married individuals filing separately, up from $34,000 in 2022.