The Top Federal Tax Laws to Take Advantage of in 2023

At Fortifi Bank, we’re committed to being your go-to source for all things financial. That’s why we’re here to fill you in on the latest tax laws and how they could impact you. With the SECURE Act 2.0 now in effect, some of the provisions from the previous American Rescue Plan Act have changed or been taken away. In this guide, we’re breaking down the most important tax laws you need to know for 2023, so you can make informed decisions for your financial future.

Child Tax Credit

The American Rescue Plan Act of 2021 (ARPA) raised the child tax credit to $3,000 for kids under 18 and $3,600 for kids under 6 for the 2021 tax year. But the recent SECURE Act 2.0 has lowered the credit back down to $2,000 for the 2022 tax year. Unfortunately, the age limit has also gone back to 16 years old, so 17-year-olds won’t qualify anymore.

Earned Income Tax Credit

ARPA also increased the Earned Income Tax Credit (EITC) for the 2021 and 2022 tax years. The EITC is a tax credit for low- and moderate-income taxpayers designed to offset the burden of payroll taxes. The credit amount varies based on income level, filing status, and number of children. ARPA increased the credit for those with no qualifying children from $529 to $1,502, but SECURE Act 2.0 has reduced this amount back to $500 for 2022.

Supporting Struggling Businesses

The American Rescue Plan Act (ARPA) provided support for struggling businesses, like restaurants, bars and others. It did this by creating the Restaurant Revitalization Fund (RRF) which gave $28.6 billion in grants to eligible businesses to help keep them going and make necessary improvements. ARPA also helped employers who were impacted by COVID-19 by expanding the Employee Retention Credit. This credit provided a tax break to employers who saw a drop in their sales or had to close their operations. The credit was increased to 70% of the first $10,000 of pay to each eligible employee. However, the RRF money must be used by March 11, 2023 or given back to the Small Business Administration and this fund will not be refilled.

Reduced Maximum Limit for Business Interest Deductions

ARPA extended the reduced maximum limit for business interest deductions for the 2022 and 2023 tax years. The previous law limited these deductions to 30% of the taxpayer’s adjusted taxable income, but ARPA increased this limit to 50% of the taxpayer’s adjusted taxable income for the 2022 and 2023 tax years. This will provide additional deductions for businesses with high levels of interest expenses, allowing them to better handle cash flow during difficult times, invest in growth and expansion, or stay afloat. Businesses with large amounts of debt, such as real estate developers or manufacturers, will benefit the most from this provision.

Expanding the Premium Tax Credit (PTC)

ARPA also extended and expanded the Premium Tax Credit (PTC) to help individuals and families afford health insurance. The PTC helps taxpayers with incomes between 100% and 400% of the federal poverty line to afford health insurance purchased on the Marketplace. ARPA increased the PTC amount and provided extra help for people with incomes less than 150% of the federal poverty line. For tax years 2021 and 2022, some taxpayers with household income exceeding 400% of the Federal Poverty Line may be eligible for a credit if the premium exceeds 8.5% of their household income.

No Above the Line Charitable Deduction for 2023

You might have heard that during the COVID-19 pandemic, taxpayers could take a $600 charitable donation deduction on their taxes, even if they didn’t itemize their deductions. Well, this won’t be the case in 2023. If you take the standard deduction, you won’t be able to claim a charitable donation deduction.

The Inflation Reduction Act of 2022 – Residential Energy Credits and New Clean Vehicle Credits

If you’ve made energy efficiency improvements to your home, or plan to, be sure to talk to a tax expert. These expenditures can now include windows, doors, solar panels, and home energy audits, and they aren’t just limited to your primary residence anymore.

And if you’re looking to get a Clean Vehicle Credit for your new electric car, there are some new rules to keep in mind. The credit will only apply to vehicles that are assembled in North America, and the IRS has a list of eligible vehicles. They’ll check your car’s VIN to make sure it qualifies. Just be aware that if your income is over a certain amount, you won’t be eligible for the credit. That amount is $300,000 if you’re married and filing jointly, $150,000 if you’re single, or $225,000 if you’re a head of household.

Overall, tax laws have undergone significant changes in 2023. It’s worth noting that it’s always wise to consult with a tax expert to verify what deductions or credits apply to your specific situation. Remember, that laws and regulations are subject to change and professional guidance can help ensure compliance and minimize risk.

At Fortifi Bank, we pride ourselves on providing our customers with the tools and resources they need to achieve financial success. If you have any questions about how to take advantage of these Wisconsin tax laws when filing your state taxes in 2022, please don’t hesitate to reach out to us. We would be more than happy to help.

Meet Megan M. Heintzkill, CFP®, CDFA® – the Director of Financial Planning at Fortifi Bank. As a Certified Financial Planner® and a Certified Divorce Financial Analyst, Megan has the expertise and experience needed to help individuals and families navigate their financial lives. With her extensive knowledge of the financial industry, Megan is dedicated to providing personalized and comprehensive financial planning services to her clients.

References:

American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 188 (2021)

“What the American Rescue Plan Act means for you”. IRS.gov. (2021)

“A Tax Guide to the American Rescue Plan”. Tax Foundation (2021)

“Get Ready for taxes:  What’s new and what to consider when filing in 2023” 12/6/22 IRS.gov