Updated Tax Laws for 2023 Tax Year

Keeping You Informed

Child Tax Credit

Reduced back to the pre-2021 amount of $2,000 per child for children under the age of 17 at the end of the year. The credit may be partially refundable. The credit amount decreases if your Modified Adjusted Gross Income exceeds $400,000 (MFJ) or $200,000 for all other filers.

Child and Dependent Care Credit

Maximum expenses go back to the pre-2021 amounts of $3,000 for one child and $6,000 for two.  The credit is up to 35% of the qualified expenses ($3,000 x 35% = $1,050 maximum credit for one child).  The credit is non-refundable.

Clean Vehicle Credit

One of the changes made by the Inflation Reduction Act requires final assembly of a qualifying clean vehicle purchased after 08/16/2022 to occur in North America. The credit is up to $7,500 for buyers of qualified new clean vehicles. Preowned all-electric or plug-in hybrid vehicles purchased on or after Jan. 1, 2023 may be eligible for a federal income tax credit of 30% of the purchase price up to a maximum credit of $4,000.

Educator Expenses

For the 2022 tax year, teachers and other educators who pay for books, supplies, COVID-19 protective items and other materials used in the classroom out of their own pockets can deduct up to $300 of these costs as an above the line deduction.  Eligible educators include kindergarten through grade 12 teachers, instructors, counselors, principals, or aides in a school for at least 900 hours during a school year.  Homeschooling parents cannot take the deduction.

Form 1099-K

Beginning in 2023 third party payment networks (e.g., PayPal and Venmo) must file Form 1099-K with the IRS if the gross amount is over $600 during the year for goods and services. It does not apply to payments from family and friends.

Health Savings Accounts

The 2023 maximum contribution is $3,850 for a self only plan and $7,750 for a family plan (plus a $1,000 catch-up contribution if you’re over age 55).

Itemized or Standard Deduction

Many taxpayers will not be able to itemize deductions (at the federal level) because of the higher standard deduction amounts. The 2023 standard deduction for federal income tax purposes are as follows:

  • Married Filing Joint $27,700
  • Single $13,850
  • Head of Household $20,800

If you are over 65 and/or blind, you will receive an even higher standard than those listed above.

Reduced itemized deductions include a $10,000 limit on state and local taxes. Add up the amounts you paid in state withholdings and estimated taxes you paid in 2023, plus real estate taxes you paid on property you own (not including rentals) and your vehicle license tax. You will lose any amounts over the $10,000 limit for this deduction.

Medical expenses are deductible but subject to 7.5% of your adjusted gross income (AGI). If your AGI is $100,000, the floor you must get above is $7,500. Certain states, including Arizona, do not have a limit on the amount you may deduct for medical expenses.

It is very common for Arizona residents to itemize on their state tax return but not the federal return because Arizona does not limit medical deductions.

Deductions that no longer exist include the following:

  • Individual income tax preparation fees
  • Unreimbursed employee expenses (expenses for employment related to W2 recipients)

QBID - Qualified Business Income Deduction

If you are a sole-proprietor or have an interest in a partnership or S-Corporation, you may qualify for a 20% Qualified Business Income Deduction. Many of you have reaped the benefits of this deduction beginning in 2018, the year the QBID began.

Energy Efficient Home Improvement Credit

The following expenses may qualify:

• Exterior doors, windows, skylights and insulation materials,
• Central air conditioners, water heaters, furnaces,
• Home energy audits

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation – 30% up to a maximum of $1,200 with no lifetime limit.

Residential Clean Energy Credit

The following expenses may qualify:

• Solar, wind and geothermal power generation,
• Solar water heaters,
• Battery storage

The amount of the credit you can take is a percentage of the total improvement expense in the year of installation – 30% with no annual maximum or lifetime limit.

Retirement Savings

For 2023, the maximum contributions for 401(k), 403(b) and 457 accounts is $22,500 (plus a $7,500 catch-up contribution if you are over age 50.)  The maximum contribution for a SIMPLE IRA is $15,500 (plus a $3,500 catch-up contribution if you are over age 50). The maximum contribution for both a traditional and ROTH IRA has increased to $6,500 (plus a $1,000 catch up contribution if you are over age 50).

Standard Mileage Rate

The standard mileage rate for 2023 is 65.5 cents per mile for business purposes. The medical mileage rate is 22 cents per mile.  Charitable purpose mileage remains fixed by law at 14 cents per mile.