Updates Q3 2022 Updates – effective July 1, 2023

$ limit changes

Note: These changes are inflation indexed dollar limits. As per the
AICPA, for CPA REG examination, 2023 $ limits apply from Q3 2023 and
are applicable for testing until Q2 2024. These dollar limit changes are
NOT tested on the CPA exam and there is no need to memorize these.
Inflation Adjusted $ limits for 2023 – Do not memorize!

• Pg R1-14, R1-15 & R1-66: Standard Deduction

Standard deduction [2023 vs. 2022]:

o Single/Married Filing Separately (MFS) - $13,850 [vs. $12,950 for 2022]
o Head of Household - $20,800 [vs. $19,400 for 2022]
o Married filing jointly (MFJ)/ Qualified Widow(er) - $27,700 [vs. $25,900 for 2022]

Additional deduction for Elderly (>65) and/or blind [2023 vs. 2022]:

Single MFJ
Single/ only 1 spouse qualified
65 OR Blind $1850 [vs. $1,750 for 2022] $1500 [vs. $1,400 for 2022]
65 AND Blind $3700 [vs. $3,500 for 2022] $3000 [vs. $2,800 for 2022]
Both spouses qualified
Each 65 OR Blind n/a $3000 [vs. $2,800 for 2022]
Both 65 AND Blind n/a $6000 [vs. $5,600 for 2022]

• Pg R1-66: Standard deduction for dependent

For dependents of others, standard deduction is greater of $1250 [vs. $1150 for 2022] or earned income
of the dependent + $400.
E.g., dependent who receive wages of $3,000 in 2023 would have a basic standard deduction of $3,000 +
$400 = $3,400.

• Pg R1-15: Who must file Form 1040?

✓ Claimed as dependent on another’s return but have one of the following:
o Unearned income (includes taxable interest, ordinary dividends & capital gains) over
$1,250 for 2023 [vs. $1,150 for 2022].
o Earned income (includes salaries/wages/tips, professional fees, taxable scholarships &
fellowship grants) over $15,400 for 2023 [vs. $12,950 for 2022]
o Gross Income (Unearned income + Earned income) more than the greater of (i) $1,250
for 2023 [vs. $1,150 for 2022], or (ii) Earned income (up to $15,000) + $400 for 2023 [vs.
$12,550 + $400 for 2022]

• Pg R1-20: Determining dependency - Qualifying Child vs. Qualifying Relative {IRS JAR Test}
✓ Income test for Qualifying Relative – Gross Income (excluding social security benefits) must be
less than $4,700 for 2023 [vs. $4,400 for 2022]

• Pg R1-22, R3-16, R5-10 & R5-20: Cash Method

✓ Allowed for small businesses (including Partnerships and Corporations) that have average
annual gross receipts of $29 MM or less for 2023 during the preceding 3 years [vs. $27 MM or
less for 2022]

• Pg R1-22 & R5-10: Uniform Capitalization (UNICAP) rules

✓ Further, note that UNICAP (Uniform Capitalization Rules) for inventory is not required for small
businesses having average annual gross receipts of $29 MM or less during the preceding 3 years
[vs. $27 MM for 2022]
• R1-37: Accounting for Inventory
✓ Small businesses (average annual gross receipts of $29 MM [vs. $ 27 MM for 2022] or less during
preceding 3 years)
 If using accrual basis of accounting, inventory is valued at lower of cost or market
- May use Specific Identification, FIFO or LIFO method; but remember, as per LIFO conformity
rule. if LIFO used for tax. it must be used on books
 Per TCJA, if using cash basis of accounting not required to use accrual method to calculate
COGS and Inventory. May use either of the options:
- Treat inventories as non-incidental materials and supplies, or
- Conform to the taxpayer's financial accounting treatment of inventories
✓ Businesses with average annual gross receipts of over $29 MM [vs. $ 27 MM for 2022] during
preceding 3 years - Required to use Uniform Capitalization (UNICAP) Rules for Inventory.

• Pg R1-30, R1-38, R3-31 & R3-33: Transportation expenses

Transportation benefits (for travel between employee residence & place of employment - e.g.,
transit passes, parking fees) – monthly limitation $300 [Vs. $200 for 2022] however, per TCJA, these
are not deductible by the employer unless incurred to ensure the safety of the employee.

• Pg R1-30: Qualified Adoption expenses paid by employer – up to $15,950 for 2023 [vs. $14,890 for
2022]; phase-out applies.

• Pg R1-33, R1-43 & R2-11: Preferential Tax Rates for Qualified Dividends and Long-term Capital Gains
Tax Rates
[for 2023; only for reference – do not memorize!]:

Qualified Income Tax Bracket Income Tax Bracket Applicable Income Tax Rate
Dividends/Capital (Single) (MFJ) at the given Tax Brackets
Gains Rate

0% $0 - $44,625 $0 - $89,250 10%-12%

15% $44,626 - $492,300 $89,251 - $553,850 12%-35%

20% $492,300 + $553,850 + 35%-37%

• Pg R1-37 & R3-33: Business Interest Expense limitation

Business interest expense limitation does not apply to small business with average annual gross
receipts of $29 MM or less during the preceding 3 years for 2023 [vs. $27 MM for 2022]

• Pg R1-38, R3-33 & R3-35: Business Meals – deduction limited to 50% for business meals even if taken
at a restaurant [vs. For 2021 & 2022, 100% business meals expense is deductible for food or beverages
provided by a restaurant].
• Pg R1-38, R3-31, R3-33: Trade expenses
Transportation expenses - actual expenses (depreciation limited to % business-use) OR standard
mileage rate @ $0.655 per business mile plus parking up to $300 per month & tolls for 2023 [vs.
$0.585 per mile & up to $280 per month for parking for 2022]
Fringe benefits provided to employees - For tax year 2023, the monthly limitation for the qualified
transportation fringe benefit and the monthly limitation for qualified parking increases to $300 [vs.
$280 for 2022] - per TCJA, no longer deductible unless incurred to ensure the safety of the employee.

• Pg R1-39, R4-12: Excess Business Loss Limitation

✓ NOL deduction -$289k / $578k for MFJ for 2023 [vs. $270k / $540k for 2022]. Apply this
limitation after NOL is computed.
✓ “Excess business losses” are not deductible - Excess business losses are business losses in
excess of the threshold $289k / $578k for MFJ for 2023 [vs. $270k / $540k for 2022]

• Pg R1-40 & R5-12: Rules for long-term contracts –

Small businesses (with average annual gross receipts of $29 MM or less during the preceding 3 years,
limit for 2023 [vs. $27 MM for 2022] may use completed contract method.

• Pg R1-52: Foreign Earned Income Exclusion $120,000 for 2023 [vs. $112,000 for 2022]

• Pg R1-58: IRA Deduction (Table)

✓ Contribution $ limits
o Contribution $ limit for 2023 - $6,500 ($13,000 if MFJ) [vs. $6,000 and 12,000 for
MFJ in 2022]
o Additional $1,000 allowed for 50+ age [same as for 2022]
✓ Phase-out limits for 2023 (always on Modified AGI)
o Traditional Deductible IRA - $73k - $83k; $116k - $136k for MFJ [vs. $68k - $78k ;
$109k - $129k if MFJ for 2022]
o Roth IRA - $138k - $153k ; $218k - $2228k if MFJ [vs. $129k - $144k ; $204k - $214k
if MFJ for 2022]
✓ Distribution - Age Limits & Early Withdrawals:
o Qualified Early withdrawal (for qualified status of Roth IRA, wait 5 years after 1st
contribution
No penalty (tax is ok)
- Homebuyer (1st time) $10,000 for use in 120 days
- Death (or terminal illness)* or Disability (permanent or indefinite)
- Higher (college) education qualified expense
- Medical expenses in excess of 10% of AGI
- Medical insurance for 12-weeks unemployed
- Per SECURE Act, upto $5,000 to defray the costs of having or adopting a
child Terminal Illness
- Federally declared disaster (Limited to $22,000)*

*Content Update
• Pg R1-60, R1-95, R1-96, R1-97 & R6-21: FICA Social Security
- FICA-Social Security @6.2% for employer plus 6.2% for employee on max. $160,200 for 2023 [vs.
$147,000 for 2022].

• Pg R1-61: Health Savings Account (HSA)/ MSA (Medical Savings Account) deduction
✓ HSA contribution limit up to $3,850 / $7,750 for single/family for 2023 [vs. $3,650 /$7,300
for single/family for 2022] $1,000 for age 55 years or older only if covered under high
deductible HDHP which was >$1,500 [vs. $1,400 for self for 2022] for self-coverage and
$3,000 for family [vs. $2,800 for family for 2022].
o HDHP maximum out-of-pocket amounts (deductibles, co-payments and other
amounts, but not premiums) $7,500 for self/ $15,000 for family for 2023 [vs. $7,050
for self/$14,100 for family for 2022]
o MSA contribution limit up to $3,950 for single/ $7,900 for family for 2023 [vs.
$3,700 for single/ $7,400 for family] MSA maximum out-of-pocket amounts $5,300
for self and $9,650 for family coverage for 2023 [vs $4,950 for self and $9,050 for
family coverage in 2022].

• Pg R1-61: Student Education Loan Interest deduction

Up to $2,500 (for self, spouse & dependents) for 2023 [same as for 2022], phase out applies.

• Pg R1-68 & R6-31: {Mike} - Medical & Dental Expenses

Threshold for medical expenses is 7.5% of AGI for 2023 [same as for 2022]
Travel cost for medical care @actuals or 22 cents/mile for 2023 [vs. 18 cents/mile for 2022]

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• Pg R1-75: QBI Deduction Limitations
✓ For taxpayers with taxable income (before the QBI deduction) that exceed the threshold
$182,100 /$364,200 for MFJ [vs. $170,050 for Single / $340,100 for MFJ for 2022]

: The partial or full reduction to QBI is determined by taxpayer’s taxable income. For 2023:

Taxable Income (before QBI deduction) Reduction applicable for QBI

Up to Threshold No need to reduce QBI

[$182,100 /$364,200 for MFJ]

At phase-in range QBI is phased in (Partial reduction)

[$182,101–$232,100 /
$364,201–$464,200 for MFJ)

Above phase-in range

[Over $232,100 /$464,200 for MFJ] Full reduction of QBI

Specified Service trade/business (SSTB) – Excluded from Qualified Business Income if taxpayer's
taxable income exceeds a certain threshold.
✓ For 2023:

Taxable Income (before QBI Treatment of Income from SSTB

deduction)

Up to Threshold SSTB = Qualified Trade Business.

[$182,100 /$364,200 for MFJ] Therefore, SSTB income is fully eligible for QBI deduction

At phase-in range Only an applicable % of SSTB is treated as a Qualified

[$182,101–$232,100 / Trade/Business.
$364,201–$464,200 for MFJ) Therefore, SSTB income is partially eligible for QBI deduction

Above phase-in range

[Over $232,100 /$464,200 for MFJ] SSTB income is not eligible for QBI deduction

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 • Pg R1-77: Federal Income Tax Brackets for 2023 [For reference only – do not memorize!]

Tax Rate For Single Filers For Married Individuals For Heads of Married filing separately
Filing Joint Returns Households

10% $0 to $11,000 $0 to $22,000 $0 to $15,700 $0 to $11,000

12% $11,000 to $44,725 $22,000 to $89,450 $15,700 to $59,850 $11,000 to $44,725

22% $44,725 to $95,375 $89,450 to $190,750 $59,850 to $95,350 $44,725 to $95,375

24% $95,375 to $182,100 $190,750 to $364,200 $95,350 to $182,100 $95,375 to $182,100

32% $182,100 to $231,250 $364,200 to $462,500 $182,100 to $231,250 $182,100 to $231,250

35% $231,250 to $578,125 $462,500 to $693,750 $231,250 to $578,100 $231,250 to $346,875

37% $578,125 or more $693,750 or more $578,100 or more $346,875 or more

• Pg R1-78 & R5-21: Kiddie Tax –

Dependent child’s unearned income reported on child’s return that is subject to ‘kiddie tax’ is $2,500
for 2023 [vs. $2,300 for 2022]
Kiddie Tax Rates [for 2023]
o $0 - $1,250 – Child standard deduction [vs. 1,150 in 2022]
o Next $1,250 – Taxed at child’s tax rate [vs. 1,150 in 2022]
o Above $2,500 – Taxed at the parent’s marginal tax rate
If the child’s only income is interest, dividend & capital gains, and totals less than $12,500 for 2023
[vs. $11,500 for 2022], the parent(s) may be able to elect to include that income on the parent(s)
return rather than file a return for the child.

• Pg R1-85: Adoption Credit – Limited to $15,950 per child for 2023 [vs. $14,890 for 2022]; phaseout
applies.

• Pg R1-85: Child Tax Credit –

✓ Child Tax Credit $2,000 for each qualifying child (age under 17) for 2023 [same as in 2022].
✓ Phase out of Child tax credit:
High income taxpayers must reduce the $2,000 allowable Child tax credit by $50 for each $
1,000 (or fraction thereof) by which modified AGI exceeds:
o $400,000 for MFJ
o $200,000 for single & MFS
✓ Refundable portion of Child Tax Credit (2023) – lesser of the following:
o Excess credit over tax liability
o (Earned income - $2,500) x 15%
o $1,600 per qualifying child [vs. $1,500 for 2022]
 • Pg R1-87: Dependent & Child Care Credit
Maximum qualifying expenditures $3,000 ($6,000 for two or more dependents) for 2023 [same as
2022].
o Maximum 35% credit rate if AGI is $15,000 or less.
o Credit is gradually phased out for high-income taxpayers but not below 20%.
A qualifying person is one under age 13 who qualifies as a dependent or a spouse or disabled
dependent who is unable to care for self.

• Pg R1-88: Earned Income Credit –

Not more than $11,000 for 2023 of investment/disqualified income for 2023 [vs. $10,300 for 2022]

Thresholds for 2023 (only for understanding - do not memorize!)

Phase in from $1 Credit as a % of Maximum credit Phase-out

upto earned income

3 or more $16,510 45% $7,430 $21,560 - $56,838

qualifying children ($28,120 - $63,698 for MFJ)

2 qualifying $16,510 40% $6,604 $21,560 - $52,912

children ($28,120 - $59,478 for MFJ)

1 qualifying child $11,750 34% $3,995 $21,560 - $46,560

($28,120 - $53,120 for MFJ)

No qualifying child $7,840 7.65% $600 $9,800 - $17,640

($16,370 - $24,210 for MFJ)

• Pg R1-90: Residential Clean Energy Credit – (covered in Q2 2023 updates)

• Pg R1- 92: General Business Credits

‘General Business Credit’ was updated to reflect the revised name of the Alternative fuels credit and
to remove the Alternative motor vehicle credit which is no longer available.

• Vehicle and Fuel-Related Credits (New Credit) Ch R1- 1.6 (IRS Language)

Clean Vehicle Credit

If you buy a new plug-in electric vehicle or fuel cell vehicle in 2023 or after, you may qualify for a clean
vehicle tax credit. If you bought a new, qualified plug-in electric vehicle in 2022 or before, you may be
eligible for a clean vehicle tax credit up to $7,500.

Beginning January 1, 2023, if you buy a qualified used electric vehicle or fuel cell vehicle from a
licensed dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit (also
referred to as a previously owned clean vehicle credit). The credit equals 30% percent of the sale price
up to a maximum credit of $4,000.
 Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify
for a commercial clean vehicle tax credit of up to $40,000.

Alternative Fuel Refueling Property Credit R1- 1.6

A credit of 30% of the installation costs of "qualified alternative fuel vehicle refueling
property" installed in the home (e.g., electric vehicle recharging station). Maximum credit
$1,000.
Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify
for a commercial clean vehicle tax credit of up to $40,000.

➔ Pg R1-90: Saver’s Credit = Retirement Savings Contribution Credit

AGI thresholds for 2023 (only for understanding - do not memorize!):

MFJ Single Credit Maximum eligible Maximum credit (per

Rate contribution (per taxpayer)
taxpayer)

$0-$43,500 $0-$21,750 50% $2,000 $1,000

$43,501-$47,500 $21,751-$23,750 20% $2,000 $400

$47,501-$73,000 $23,751-$36,500 10% $2,000 $200

Over $73,000 Over $36,500 0% n/a n/a

• Pg R1- 96 Self Employment Tax

Only self-employment income up to $160,200 for 2023 (vs. 147,000 for 2022) is subject to the 12.4%
Social Security tax.

• Pg R1- 100 Penalties may be imposed on Failure-to-file or Failure-to pay

For returns not filed within 60 days of due date (including extensions), IRS may assess a
minimum penalty which is lesser of $485 for 2023 [vs. $450 for 2022] or 100% of amount of tax due.
If both the failure-to-file penalty and the failure-to-pay penalty are due, the failure-to-file penalty is
reduced by the amount of the failure-to-pay penalty.

• Pg R2-22 & R3-42: Section 179 Expense

✓ Limit for 2023 = Up to $1.16 million [vs. $1.08 million for 2022]
✓ Phase-out – Reduced $ by $ for amount by which Sec 179 property placed in service during
the year exceeds $2.89 million for 2023 [vs. $2.70 million for 2022]

• Pg R2-22: Special Depreciation Allowance/ Bonus depreciation

✓ Bonus depreciation expense is 80 percent (2023) of the cost of qualified property placed in
service during the year.
 ✓ Qualified property is personal property and qualified improvements with a class life of 20
years or less.
✓ Bonus depreciation expense is claimed after Section 179 expense (if elected), and before
regular MACRS depreciation expense.

• Pg R4-41, R4-42, R4-43 & R5-21: Gift exclusion limit for “present interest” gifts is $17,000, and
$34,000 for MFJ if electing to split gift) for 2023 [vs. $16,000/$32,000 if MFJ for 2022]

• Pg R4-41 & R4-43: Unified Credit and Lifetime Exclusion –

Unified Credit for 2023 = $5,113,800 (implies a deduction of $12,920,000) [vs. 2022 unified credit of
$4,769,800 (implies a deduction of $12,060,000]

• Pg R5-31: Failure-to-file-penalty (for returns to be filed in 2023) – Need to memorize!

If the return is filed more than 60 days after due date (or extended due date), the minimum penalty
for 2022 is:
o Individuals – smaller of $485 or 100% of the unpaid tax [vs. $450 for 2022]
o C-Corps – smaller of $485 or 100% of the unpaid tax [vs. $450 for 2022]

Since S Corps & Partnerships generally do not have taxes due at the entity level, the failure-to-file
penalty for 2023 is:
o S Corps (if no tax is due) - $235/month (for a max. of 12 months) x # of shareholders [vs. $220 for
2022]
o Partnership - $235/month (for a max. of 12 months) x # of partners [vs. $220 for 2022]

• Pg R6-13: Income Tax Return Preparer Penalties [for returns or claim of refund filed to be filed in
2023] – No need to memorize!

Failure to furnish copy of return to taxpayer $60 per return / upto $30,000 per year [$55
Failure to sign return per return / upto $28,000 per year as in 2022]
Failure to furnish identifying number of the
Preparer on Return
Failure to retain a copy of return for 3 years or
maintain a list of names and ID numbers of the
taxpayers for whom the returns are prepared
Failure to correct information returns
Endorsing or negotiating taxpayer’s refund check $600 per check / No limit for max. penalty
Failure to be diligent in determining eligibility for [$560 per check / No limit for max. penalty as
certain benefits (EIC, child tax credit, other in 2022]
dependent credit, American opportunity credit,
HH filing status)