2023 Tax Rate Changes for Personal and Business Tax Filing Purposes

Dec 22, 2022

Quoteboard showing “Taxes” on cash bills.

Taxes are a complex and often confusing topic for individuals and businesses in the United States. For individuals, the federal tax rate changes depending on filing status, income level, and deductions. Additionally, the rules and regulations surrounding taxes change frequently, making it difficult for individuals and businesses to stay updated.

The Internal Revenue Service (IRS) has numerous rules, regulations, and forms that you must follow to report income accurately and determine the correct amount of taxes owed. Understanding the tax rates, how to calculate them, and how to get relief can seem like an overwhelming process. This is why you must seek help from tax professionals.

Read on if you’re looking for an overview of the 2023 tax rate changes for individuals and businesses in the United States.

Personal and Business Tax Rate Changes for 2023

Individual Tax Rates

Individuals in the United States pay different tax rates depending on their income level and filing status. The federal income tax rate is progressive, meaning that the higher your income, the higher your tax rate will be. Individuals are subject to a 10% tax rate at the lowest income bracket, while the highest income bracket is taxed at a rate of 37%. In addition to the federal income tax rate, individuals may also be subject to state and local taxes, varying significantly depending on where they live.

Business Tax Rates

Businesses in the United States are also subject to various tax rates, depending on their type of business and income level. The federal corporate income tax rate is a flat rate of 21%, while the tax rate for pass-through businesses such as S corporations and partnerships is 24%. In addition to the federal tax rate, companies may also be subject to state and local taxes, which can vary significantly depending on where they operate.

What Will Happen to the Tax Rates in 2023?

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In 2023, the United States tax system is projected to continue to evolve. The Tax Cuts and Jobs Act of 2017 (TCJA) is projected to impact businesses and individuals significantly. Inflation has prompted the IRS to increase thresholds for tax brackets in 2023.

Individuals

For individuals, the top marginal income tax rate is projected to remain at 37%, the same as in 2021 and 2022. The TCJA provided a one-time reduction in the maximum marginal rate from 37% to 29.6%.

The other tax brackets are expected to remain the same, with the lowest tax rate of 10% on the first $11,000 and 12% on the next $33,725. The standard deduction will rise to $13,850 for single and married taxpayers filing separately and $20,800 for heads of households.

In addition, the TCJA has made other changes that may affect individuals in 2023. The alternative minimum tax (AMT) is projected to remain in effect, and the personal exemption, eliminated in 2018, is not expected to return.

Businesses

For businesses, the corporate tax rate is expected to remain at 21%, the same as in 2021 and 2022. While the TCJA provided a one-time reduction in the corporate tax rate from 35% to 21%, the rate is still lower than before the 2017 law.

The pass-through business income tax rate is projected to remain at the same rate of 25%. This rate applies to businesses structured as sole proprietorships, partnerships, limited liability companies (LLCs), and S-corporations.

What’s Next?

  • The United States Federal Corporate Tax Rate is expected to increase from 21% to 28% in 2023.
  • 2023 will see the same federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) as in 2021. However, the income floors for these brackets have increased for 2023.
  • The US government could pass tax reform in the future that would change individual and corporate tax rates, but any changes are uncertain at this time.
  • The Tax Cuts and Jobs Act of 2017 was a significant tax reform law that changed individual and corporate tax rates. The law could be extended beyond its current expiration date in 2025, potentially impacting personal and corporate tax rates in 2023.
  • The US government could also pass new laws changing individual and corporate tax rates in 2023. It is impossible to predict what these changes would be at this time.

How to Save on Taxes?

Tax rebates are an essential part of the taxation system, as they allow businesses and individuals to receive a refund when they have paid too much tax. Understanding the different ways to avail of tax rebates can help you keep more money. Below are a few tips to help you get started:

  • Tax Deductions and Credits: Take advantage of all possible tax deductions. This includes home mortgage interest, state and local taxes, charitable donations, and business expenses.

Tax deductions and credits can help businesses and individuals reduce their tax bills. For example, if a company has $100,000 in taxable income, it may be able to deduct $20,000 for qualified business expenses, resulting in a taxable income of $80,000.

  • The Earned Income Tax Credit (EITC) is a refundable credit for low- to moderate-income workers. For example, if an individual earns $35,000 and qualifies for the EITC, they could receive a credit of up to $6,000.
  • Deferring Income: Deferring income to lower your taxable income can be beneficial for businesses and individuals who anticipate earning more in the future. For example, if an individual expects to earn $50,000 in the current year and $60,000 in the following year, they can defer some of the income to the next year and reduce their taxable income in the current year.
  • Talk to a Professional: It is essential to speak to a qualified accountant or tax professional to ensure that you understand the eligibility requirements and take full advantage of the available tax rebates.

Exact Tax Inc. is the perfect solution for anyone who wants to simplify the complex USA Tax System and save on taxes. With our team of experienced tax professionals and personalized approach to tax planning, Exact Tax Inc. will help you plan your taxes well and ensure you get the best possible results. Not only will you be able to save on taxes, but you can also be sure that your taxes are handled by experienced experts who know the ins and outs of the USA Tax System. So if you want to ensure that you are getting the most out of your taxes, get in touch with us.