What you need to know going into tax season: inflation, tax brackets, penalties and interest

Each year, the IRS provides new guidance for certain calculations on deductions, exemption, and credits based on inflation.  Additionally, the IRS adjusted the penalty and interest rate for inflation taking effect 1/1/2023.  

Here are some highlights for what to expect for your 2022 tax return as well as more detail behind the interest rate increase for the first quarter of this year.

Highlights*

Increases in allowable credits, deductions, and exemptions include:

  • Standard deduction for married couples filing jointly
  • The AMT (Alternative Minimum Tax) exemption amount
  • Maximum Earned Income Tax credit for qualifying taxpayers
  • Foreign earned income exclusion
  • Gift exclusion
  • Adoption credit

For detailed amounts and additional highlights, refer to this IRS announcement.

Tax Brackets

The marginal rates for tax year 2022 are as follows.

The top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).\

The other rates are:

35%, for incomes over $215,950 ($431,900 for married couples filing jointly);

32% for incomes over $170,050 ($340,100 for married couples filing jointly);

24% for incomes over $89,075 ($178,150 for married couples filing jointly);

22% for incomes over $41,775 ($83,550 for married couples filing jointly);

12% for incomes over $10,275 ($20,550 for married couples filing jointly).

The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).

*Source: For full details, here is an IRS brief.

Interest rate increase

For individuals, the new rate is 7% annually, compounded daily. This is up 1% from 6% in the fourth quarter of 2022. Per the IRS, here is a list of the new rates:

  • 7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
  • 4.5% for the portion of a corporate overpayment exceeding $10,000.
  • 7% for underpayments. (taxes owed but not fully paid)
  • 9% for large corporate underpayments.

The IRS determines the rate of interest on a quarterly basis. For full details that apply to individuals as well as corporations, refer to the IRS announcement here

Entrepreneurs and tax strategy

For businesses, having a good tax strategy is part of the process for achieving your financial goals. Working closely with your advisor on a regular basis throughout the year is mission critical to helping you be as tax efficient as possible. 

Have questions? Need some help building the best strategy for your year? Call us at (614) 456-7222. We understand that there is more to running a business than numbers. With the best tax strategy in place, you can move beyond your tax plan and into your growth plan to make 2023 your best year yet.

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