Dealing with Inflation & Your Taxes in 2023
Let’s talk about something that probably hit your wallet hard in 2023: inflation. Everything from groceries to gas got more expensive. But here’s some good news you might have missed: the IRS actually made some adjustments to help ease the pain when it came to your taxes.
If you’re a small business owner, freelancer, realtor, or gig worker, understanding these changes could mean real money back in your pocket. So let’s break it down in plain English.
What Exactly Happened in 2023?
The IRS implemented a 7.1% inflation adjustment for 2023 tax provisions. That’s the largest inflation adjustment for individual taxes we’ve seen in decades. Why does this matter? It’s all about something called “bracket creep.”
Bracket creep happens when inflation pushes your income into a higher tax bracket, even though your actual purchasing power hasn’t increased. You’re making more dollars, but those dollars buy less stuff. Without adjustments, you’d end up paying more taxes without being any richer in real terms.
The IRS stepped in to prevent that from happening.
The Tax Rates Stayed the Same
Here’s something important to understand: the actual tax rates didn’t change at all in 2023. They remained at:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
What did change were the income thresholds for each bracket. The IRS raised the ceiling on each bracket so you could earn more before jumping to the next tax rate.
Real example: A single filer making around $90,000 would have faced a 24% marginal tax rate in 2022. In 2023? Only 22%. Same income, lower rate: just because of the adjustment.
The highest bracket (37%) kicked in at $578,126 in 2023, up from $539,901 in 2022. That’s a 7.08% increase in the threshold.
Standard Deduction Got a Nice Bump
This is where things get really interesting for most filers. The standard deduction increased significantly across all filing statuses:
| Filing Status | 2023 Standard Deduction | Increase from 2022 |
|---|---|---|
| Single | $13,850 | +$900 |
| Married Filing Jointly | $27,700 | +$1,800 |
| Head of Household | $20,800 | +$1,400 |
A higher standard deduction means more of your income is shielded from taxation right off the bat. For a married couple filing jointly, that’s an extra $1,800 of income that the IRS doesn’t touch.
What This Meant for Your Tax Bill
If your income didn’t keep pace with inflation in 2023 (and let’s be honest, many of us were in that boat), you likely benefited from a lower tax liability.
Let’s look at a concrete example:
A single taxpayer with $60,000 in wages would owe $5,461 in 2023, compared to $5,968 in 2022. That’s over $500 in savings without doing anything different.
However: and this is important: if your income rose by 7% or more, you didn’t actually save money overall. You just avoided bracket creep. The adjustments kept you from paying more, but they didn’t give you a true tax reduction.
The Itemization Trade-Off
Here’s something that might affect you if you typically itemize your deductions: the higher standard deduction made itemizing less attractive for many taxpayers.
Think about it. If the standard deduction is $13,850 for single filers, your itemized deductions need to exceed that amount to make itemizing worthwhile. For many people, that threshold became harder to reach.
This means:
- State and local tax payments (SALT) might not have helped as much
- Mortgage interest deductions became less impactful for some
- Charitable contributions were less likely to provide tax benefits
If you’re someone who donates regularly to charity or has significant mortgage interest, it’s worth running the numbers both ways to see which method gives you the better outcome.
What This Means for Small Business Owners and Gig Workers
If you’re running a sole proprietorship, single-member LLC, or working in the gig economy: whether that’s real estate, rideshare, photography, or anything else: these inflation adjustments affected you too.
Your business income flows through to your personal tax return. So the higher brackets and increased standard deduction applied directly to your situation.
A few things to keep in mind:
- Self-employment tax wasn’t affected by these changes: you still owed 15.3% on your net self-employment income for Social Security and Medicare.
- Quarterly estimated payments should have been recalculated based on the new brackets to avoid overpaying throughout the year.
- The QBI deduction (Qualified Business Income) remained available, potentially letting you deduct up to 20% of your qualified business income.
Planning Ahead: Lessons from 2023
Even though we’re now past 2023, understanding these adjustments helps you think strategically about your taxes going forward.
Here’s what you can take away:
- Inflation adjustments happen regularly. The IRS adjusts tax provisions most years based on inflation. Staying informed helps you plan better.
- Don’t assume your tax situation is the same year to year. Brackets shift. Deduction amounts change. What worked last year might not be optimal this year.
- Track your income throughout the year. Knowing where you stand relative to bracket thresholds can help you make smart decisions about timing income or expenses.
- Consider working with a professional. Tax law changes constantly, and small business taxes add extra complexity. Having someone in your corner can save you money and stress.
The Bottom Line
The 2023 inflation adjustments were genuinely helpful for most taxpayers. Higher bracket thresholds and increased standard deductions meant more money stayed in your pocket: exactly what you needed during a time when everything else was getting more expensive.
If you didn’t take these changes into account when filing your 2023 return, or if you’re still catching up on past filings, it’s not too late to make sure you’re getting every benefit you’re entitled to.
At Small Business Tax Solutions, we specialize in helping sole proprietors, freelancers, and gig workers navigate exactly these kinds of changes. No judgment, no jargon: just straightforward help with your taxes.
Ready to talk about your tax situation? Book a consultation and let’s make sure you’re set up for success.
Have questions about how inflation adjustments affect your specific business? Contact us or check out our services to learn more about how we can help.
