2023 Inflation Adjustments for Personal Tax Planning

A number of provisions of the Internal Revenue Code provide for annual adjustments of dollar amounts based on certain inflation criteria. The IRS has announced the adjustments for 2023, which are as follows:

Gift, Estate and Generation-Skipping Transfer (GST) Taxes

The 2023 inflation adjustments for the gift, estate and GST tax exemptions are fairly significant, increasing by almost $900,000 from 2022:

• Unified Gift and Estate Tax Exemption: For gifts made and estates of decedents dying in 2023, the exemption amount will increase to $12,920,000 (up from $12,060,000 in 2022).
• GST Tax Exemption: The GST tax exemption also increases to $12,920,000 in 2023 for generation-skipping transfers (up from $12,060,000 in 2022). 
• Gift Tax Annual Exclusion: The gift tax annual exclusion increases to $17,000 for gifts made in 2023 (up from $16,000 in 2022). 
• Annual Exclusion for Gifts to Non-U.S. Citizen Spouses: For gifts made to non-U.S. citizen spouses in 2023, the annual exclusion increases to $175,000 (up from $164,000 in 2022). 

Income Taxes

Income Tax Brackets: The 2023 tax brackets for individuals as well as trusts and estates also have been adjusted upward:   

• Married joint filers: The top tax rate of 37% applies to taxable income over $693,750 in 2023 (up from $647,850 in 2022).
• Single Filers: The top tax rate of 37% applies to taxable income over $578,125 in 2023 (up from $539,900 in 2022).
• Trusts and Estates: Trust and estates have a far more compressed tax bracket, and the top tax rate of 37% applies to taxable income over $14,450 in 2023 (up from $13,450 in 2022).

Capital Gains Thresholds: Below are the increased thresholds for application of the 15% capital gains tax rate. The 20% capital gains tax rate will apply to adjusted net capital gains in excess of the 15% maximum amounts.

• Married Joint Filers: The 15% capital gains tax rate applies to adjusted capital gains of more than $89,250 and up to $553,850 (up from $83,350 to $517,200 in 2022).
• Single Filers: The 15% capital gains tax rate applies to adjusted capital gains of more than $44,625 and up to $276,900 (up from $41,675 and $258,600 in 2022).
• Trusts and Estates: The 15% capital gains tax rate applies to adjusted capital gains of more than $3,000 and up to $14,650 (up from $2,800 and $13,700 in 2022).

All of the above, however, could be changed if the incoming Congress enacts any modifications to the current income or transfer tax laws. As always, you should contact your Loeb estate planning attorney for advice prior to taking any tax planning actions.