Each fall, the IRS announces inflation adjustments for the coming tax year. In Revenue Procedure 2022-38, the Service announced the inflation-adjusted amounts for 2023, and the adjustments are among the most significant in recent memory. Driven by elevated inflation throughout 2022, the new figures reflect meaningfully higher thresholds across nearly every major tax provision. For individuals and business owners engaged in tax planning, these updated numbers should be incorporated into 2023 projections immediately.
Income Tax Brackets
The 2023 tax brackets have shifted upward by approximately 7 percent across all filing statuses. For married couples filing jointly, the 10 percent bracket now applies to the first $22,000 of taxable income (up from $20,550 in 2022), the 12 percent bracket extends to $89,450, the 22 percent bracket to $190,750, the 24 percent bracket to $364,200, the 32 percent bracket to $462,500, and the 35 percent bracket to $693,750. Taxable income above $693,750 remains subject to the top marginal rate of 37 percent.[1]
The practical effect of these wider brackets is that more income is taxed at lower rates compared to 2022. For a taxpayer whose income remained flat year over year, the 2023 brackets alone could reduce their federal income tax liability by several hundred to several thousand dollars, depending on their income level. This is not a tax cut in the traditional sense—it is an adjustment designed to prevent inflation from pushing taxpayers into higher brackets on the same real income—but the dollars-and-cents impact is real and should be reflected in withholding and estimated tax calculations.
Standard Deduction
The standard deduction for 2023 increases to $27,700 for married couples filing jointly (up from $25,900), $20,800 for heads of household (up from $19,400), and $13,850 for single filers and married individuals filing separately (up from $12,950). The additional standard deduction for individuals who are blind or over age 65 also increases.[2]
These increases continue to reduce the number of taxpayers for whom itemizing deductions produces a benefit over the standard deduction, particularly given the ongoing $10,000 limitation on state and local tax deductions under the Tax Cuts and Jobs Act. Mississippi taxpayers should evaluate whether their combined state income taxes, property taxes, mortgage interest, and charitable contributions exceed the applicable standard deduction threshold before assuming that itemizing remains advantageous.
Estate and Gift Tax Exemption
The basic exclusion amount for estate and gift tax purposes increases to $12,920,000 per individual in 2023, up from $12,060,000 in 2022. For a married couple utilizing portability, the combined exclusion can reach $25,840,000.[3] The annual gift tax exclusion—the amount an individual can give to any number of recipients without using any of the lifetime exemption—increases to $17,000 per recipient per year, up from $16,000.
These are historically elevated figures. The doubled exemption under the Tax Cuts and Jobs Act is scheduled to sunset after December 31, 2025, at which point the exemption is expected to revert to approximately $6 to $7 million per person (adjusted for inflation from the pre-TCJA baseline). For high-net-worth individuals and families, the gap between the current $12.92 million exemption and the anticipated post-sunset level represents a significant estate planning opportunity that should be addressed sooner rather than later.
Retirement Plan Contribution Limits
Contribution limits for employer-sponsored retirement plans received substantial increases for 2023. The employee elective deferral limit for 401(k), 403(b), and most 457 plans increases to $22,500, up from $20,500 in 2022. The catch-up contribution limit for employees aged 50 and older increases to $7,500, up from $6,500. The total annual addition limit under Section 415(c) increases to $66,000, up from $61,000. The annual compensation limit used for plan calculations under Section 401(a)(17) increases to $330,000.[4]
For business owners who maximize their retirement plan contributions, these higher limits translate directly into increased tax-deferred savings capacity. A business owner aged 50 or older participating in a 401(k) plan can now defer up to $30,000 of compensation ($22,500 plus the $7,500 catch-up), and the total additions to their account—including employer contributions—can reach $73,500 ($66,000 plus $7,500). Combined with a cash balance or defined benefit plan, the total tax-deferred savings available to a business owner can be substantially higher.
Alternative Minimum Tax
The AMT exemption amount for 2023 increases to $81,300 for single filers and $126,500 for married filing jointly. The phase-out thresholds also increase. While the AMT affects far fewer taxpayers under the current tax regime than it did before the TCJA, business owners with significant preference items—such as incentive stock option exercises, tax-exempt interest from private activity bonds, or large state tax deductions—should continue to model their AMT exposure as part of their annual tax planning.
Other Notable Adjustments
Several other inflation-adjusted figures deserve mention. The Section 199A qualified business income deduction thresholds increase, with the phase-in range for specified service trades or businesses beginning at $182,100 for single filers and $364,200 for joint filers. The foreign earned income exclusion increases to $120,000. The adoption credit maximum increases to $15,950. The maximum earned income tax credit for taxpayers with three or more qualifying children increases to $7,430.[5]
Business owners and their advisors should update their 2023 planning models to reflect these new figures. The magnitude of the 2023 adjustments—driven by the highest inflation in four decades—means that assumptions carried over from 2022 may be materially inaccurate. Proper planning requires current numbers, and these inflation adjustments touch virtually every aspect of federal tax compliance for individuals and businesses alike.