Hello, financial savvy folks! As we draw closer to the end of the year, it’s high time for us to delve into the realm of tax planning. The IRS has a propensity to alter tax rules from time to time, and as 2023 looms large over the horizon, it’s crucial to keep ourselves informed about these changes to better plan for our taxes. In this blog post, we’ll examine some of the potential year-end tax planning strategies and the changes to look out for in 2023.
Standard Deduction Changes
The IRS adjusts standard deductions annually to reflect the inflation rate. While the precise amount for 2023 has not been officially announced at the time of writing, experts predict an increase in line with the rising cost of living.
For 2022, the standard deductions were:
– $12,900 for single filers and married people filing separately
– $25,800 for married couples filing jointly
– $19,400 for heads of households
You can anticipate a moderate increase for 2023. Choosing whether to itemize or take the standard deduction hinges on what will provide the most financial benefit, so watch out for the 2023 numbers from IRS.
Changes in Tax Brackets and Rates
Akin to standard deductions, tax brackets and rates are also subject to change each year due to inflation. The tax reform bill passed in 2018 instituted new tax brackets and rates, which will be adjusted every year for inflation until 2025.
While the IRS has yet to release the specific figures for 2023, taxpayers can expect slight alterations in the income range for each tax bracket, as well as potential shifts in the tax rate percentages. Hence, understanding your tax bracket will be especially crucial for your financial planning.
Retirement Contribution Limits
Retirement accounts such as 401(k)s, 403(b)s, and most 457 plans have yearly contribution limits that are occasionally adjusted for inflation. In 2022, the limit was $20,500 for those under 50 years old, and $27,000 for those 50 or older (including the $6,500 catch-up contribution).
For Individual Retirement Accounts (IRAs), the 2022 limit was $6,000, or $7,000 if age 50 or older. The IRS usually announces any changes to these limits in late October, so prudent retirement savers must keep a keen eye on any announcements.
Estate and Gift Tax Exemption
The lifetime exemption for estate and gift tax also undergoes periodic adjustments. As of 2022, the exemption was $12.06 million per individual. However, this number could change due to the effects of inflation and other legislative modifications. Stay tuned for the official 2023 update from the IRS.
Possible Changes in Legislation
Lastly, it’s essential to remember that tax laws can and do change outside of the standard annual adjustments. All eyes are on Washington to see if any significant tax reforms will occur that could impact 2023 taxes.
Year-end tax planning is an essential facet of financial management. As 2023 approaches, it’s best to stay informed about any changes in tax laws and adjust your plans accordingly. The IRS provides regular updates and resources on their website which can be a helpful source of information. Alternatively, consider seeking advice from a financial advisor or tax professional like us to guide you through the nuances of the tax world. Feel free to to email us at [email protected] or call us at (801) 263-0400.
Remember, knowledge is power, especially when it comes to financial matters. So, keep learning, stay adaptable, and here’s to a financially prosperous 2023!