The 5th and final series in our blog post will cover parking & transportation benefits, AMT (alternative minimum tax), Americans working abroad, self-employed people, payroll taxes and estate & gift taxes.
Parking & transportation benefits:
The 2023 cap on employer-provided tax-free parking goes up from $280 to $300 per month. The 2023 exclusion for mass transit passes and commuter vans is also $300 ($280 in 2022).
Alternative Minimum Tax (AMT):
AMT exemptions ticked upward for 2023. They increased from $118,100 to $126,500 for couples filing a joint return and from $75,900 to $81,300 for single filers and heads of household. The phaseout zones for the exemptions start at higher income levels for the 2023 tax year as well — $1,156,300 for couples and $578,150 for singles and household heads.
In addition, the 28% AMT tax rate kicks in at higher incomes in 2023 — above $220,700 of alternative minimum taxable income.
Americans working abroad:
US taxpayers working abroad have a larger foreign earned income exclusion in 2023. It jumped from $112,000 for 2022 to $120,000 for 2023.
The standard ceiling on the foreign housing exclusion is also increased from $15,680 to $16,800 for 2023 (although overseas workers in many high-cost locations around the world qualify for a significantly higher exclusion).
Self-employed people:
If you’re self-employed, there are some tax changes for 2023 that could impact your bottom line.
- A key threshold on the 20% deduction for pass-through income was increased for 2023. Self-employed people (along with partners in partnerships, members of LLCs, shareholders of S corporations, and other owners of pass-through entities) can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes in excess of $364,200 for joint filers and $182,100 for others.
- The standard mileage rate for business driving went up to 65.5¢ per mile.
- First-year bonus depreciation isn’t as valuable in 2023 as it was in 2022. Last year, businesses could deduct the full cost of new and used qualifying business assets with lives of 20 years or less. For 2023, the 100% write-off fell to 80%.
- Expensing of business assets is higher in 2023. Up to $1,160,000 of assets can be expensed this year. This limit phases out dollar for dollar once more than $2,890,000 of assets are put in use during 2023. The amount of business assets expensed can’t exceed your business’s self-employed income.
- The temporary 100% write-off for business meals has expired. For 2021 and 2022, businesses, including self-employed people, were able to deduct 100% of business restaurant meals, provided the cost wasn’t lavish. This COVID-related easing was temporary. Starting this year, 50% of the cost of most business meals is deductible, reverting to the rules that were in place before 2021.
Payroll taxes:
The Social Security annual wage base is $160,200 for 2023. The Social Security tax rate on employers and employees stays at 6.2%. Both workers and employers continue to pay the 1.45% Medicare tax on all compensation in 2023, with no cap. Workers also pay the 0.9% Medicare surtax on 2023 wages and self-employment income over $200,000 for singles and $250,000 for couples. The surtax doesn’t hit employers, though.
The nanny tax threshold went up to $2,600 for 2023.
Estate & gift taxes:
The lifetime estate and gift tax exemption for decedents who die in 2023 jumped from $12,060,000 to $12,920,000 million.
The special estate tax valuation of real estate increases for 2023. For the estate of a person dying this year, up to $1,310,000 million of farm or business real estate can receive a discount valuation letting the estate value the realty at its current use instead of fair market value.
More estate tax liability qualifies for an installment payment tax break, too. If one or more closely held businesses make up greater than 35% of a 2023 estate, as much as $700,000 of tax can be deferred and the IRS will charge only 2% interest.
Finally, the annual gift tax exclusion for 2023 rises from $16,000 to $17,000 per donee. So, you can give up to $17,000 ($34,000 if your spouse agrees) to each child, grandchild, or any other person in 2023 without having to file a gift tax return or tap your lifetime estate and gift tax exemption.