Daniel Cuddy photo
Cuddy Financial Services logo

Daniel R. Cuddy, CPA, CFP®

Personal Financial Representative

 

Cuddy Financial Services

7 William Street

Auburn, NY 13021

 

Phone:  315-252-3600

Fax:      315-252-3625

 

Email: dcuddy@cuddyfinancial.com

2023 Tax Planning Guide

Deductions and Credits

Elevated View Of Calculator And Pen On Receipt In Office

Tax credits are subtracted directly from taxes owed, while tax deductions lower your taxable income. The following includes some federal tax credits and deductions.


STANDARD DEDUCTION
Indexed to inflation, the standard deduction, which reduces your taxable income, rose sharply in 2023.

For 2022, the standard deduction amount is $25,900 in 2022 ($27,700 in 2023) for married taxpayers filing jointly, $19,400 in 2022 ($20,800 in 2023) for those who file as heads of household, and $12,950 ($13,850 in 2023) for those who file as single or married filing separately.


CHILD TAX CREDIT
For tax years 2022 and 2023, the Child Tax Credit reverts back to a limit of $2,000 for every dependent under age 16. The credit begins to phase out for single filers with a modified adjusted gross income (MAGI) above $200,000 and $400,000 MAGI for joint filers.


CHILD AND DEPENDENT CARE TAX CREDIT
This credit in 2022 is less than in 2021, when a one-year boost increased the credit. For 2022 and 2023, the child and dependent care credit is 35% up to $3,000 of eligible expenses for one dependent and $6,000 for more than one. The credit is not refundable. In other words, you would get a $1,050 credit for $3,000 in expenses at 35% or $2,100 for 35% of $6,000 in expenses. The full credit phases out beginning at $15,000 in annual income.


ITEMIZED DEDUCTION LIMIT GONE
Itemized deductions, which were previously phased out for taxpayers with higher incomes, have no income-based limit in 2022 or 2023. Deduction limits were eliminated by the Tax Cuts and Jobs Act.


EMPLOYEE BUSINESS EXPENSE DEDUCTION
Most employees cannot claim unreimbursed business expenses as itemized deductions, but there are exceptions. Eligible employees include Armed Forces reservists, qualified performing artists, fee-basis state or local government officials and employees with impairment-related work expenses. All expenses must be paid or billed during the tax year.

HOME LOANS
Married taxpayers filing jointly may deduct the interest on a mortgage of up to $750,000 of principal. The deduction is limited to half of that for single taxpayers. Interest on home equity loans, home equity lines of credit (HELOCs) and second mortgages may be deducted only when used to buy, build or substantially improve the taxpayer’s primary or secondary qualified residence that secures the loan, subject to limits.


REAL ESTATE SECTION 1031 LIKE-KIND EXCHANGES
The treatment of investment property for Section 1031 exchanges is now limited to real property, including land and permanent structures on that land. Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. You may be able to defer taxable gains when you sell investment property. You have 45 days after the sale to identify other income-producing property that you will purchase within 180 days of the sale, or by the due date of your tax return, including extensions. Your tax professional can give you more information


SALT TAXES
Taxpayers are limited to $10,000 of state and local tax (SALT) deductions. This provision is especially harsh on homeowners in high-tax states, where state income and property taxes can easily exceed this figure. As before, buying SALT credits is not allowed. As with all charitable contributions, you’ll have to reduce the amount of your contribution by the value of anything you receive.


If you are a partner in a partnership or owner of an S-corporation, discuss the pass-through entity tax with your tax professional as a workaround to the $10,000 SALT tax deduction limit.


SUBSCRIBE

Enter your Name and Email address to get
the newsletter delivered to your inbox.

Please include name of person that directed you to my online tax guide so I can thank them personally.


CONTACT US

Enter your Name, Email Address and a short message. We'll respond to you as soon as possible.

Cuddy Financial Services and LTM Client Marketing are unrelated companies. This guide was created by LTM Client Marketing and was not written or created by the named financial professional and does not necessarily represent the views and opinions of Avantax Wealth Management® or its subsidiaries.
Avantax affiliated advisors may only conduct business with residents of the states for which they are properly licensed and registered. Securities offered through Avantax Investment Services, Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services, Insurance services offered through an Avantax affiliated insurance agency. Not all products and services are offered by all financial professionals. Products and services listed may only be offered by properly licensed individuals.

The information and opinions contained in this web site are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for any damages resulting from the use of the published information. This web site is published with the understanding that it does not render legal, accounting, financial, or other professional advice. Whole or partial reproduction of this web site is forbidden without the written permission of the publisher.