Higher Inflation May Help on Taxes

In our last post we mentioned that the lifetime exemption amount will likely increase in 2023 by almost $900,000 by far the highest increase on record due to inflation.

Other tax adjustments will also increase and some of them may be substantial. In this post we will review some of the most common adjustments that will affect most farmers:

• The top 37% tax bracket will now kick-in about $50,000 higher for married couples. The rate will apply if your taxable income exceeds about $694,000. Singles will see the top rate around $578,000 of income.
• The standard deduction will be $27,700 for married couples up from $25,900 this year. Singles will be one-half of this amount.
• The Social Security wage base will increase from $147,000 this year to about $155,000 in 2023.
• The annual gift tax exclusion will increase $1,000 to $17,000.
• A farmer should be able to put an extra $500 into their IRA next year at $6,500. For those with 401(k) profit-sharing plans, an increase of $2,000 will be available resulting in $22,500 plus $7,500 for those age 50 or over for a total of $30,000 that can be deferred into those plans.
• The refundable portion of the child tax credit will increase either $100 or $200.
• The amount of land value that can be reduced under Section 2032A is likely to increase by almost $100,000.
• The amount that can be deducted under Section 179 will go up by about $80-90,000, however, remember starting in 2023, you can only deduct 80% of your farm asset purchases using bonus depreciation instead of the current 100%.

As you can see inflation will help farmers with their income taxes in some situations. However, I think most of us would rather not see the inflation adjustments since that would mean inflation is low which it is not.