As we’re heading into the final stretch of 2022, December inevitably becomes a time when we start to think about fresh starts and the dawn of a new year. What are our plans? Is this going to be the year we start exercising and eating healthier foods? And speaking of health, what about our financial wellness?
One financial expert we talked to wants women to set a New Year’s resolution of putting a real financial plan in place, especially in light of adjustments made by the IRS to tax brackets and standard deductions for 2023.
“I have found that many women, while excellent in planning for their families and everyone else, are terrible at planning for themselves in terms of their own financial and or retirement planning,” says Wilmington Trust’s Chief Wealth Strategist Alvina Lo. “As they say on an airplane, ‘Put your oxygen mask on first before assisting others.’ We need to help more women do that with their financial affairs.”
Lo says that 2022 has been an interesting year regarding the amount of proposals for changes to tax law, but nothing major has yet been finalized. Going into tax year 2023 (which applies to taxes filed in 2024), though, changes have already been made to the salary ranges for each tax bracket, and the standard deduction for all groups will be increased. These types of adjustments are made year-to-year, but the changes for 2023 have been made to account for rising inflation.
Here’s detailed information about updated deductions and tax brackets for tax year 2023, along with several strategies for maximizing deductions:
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900; and for heads of households, the standard deduction will be $20,800, up $1,400.
Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
The lowest rate is 10% for single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
Alternative Minimum Tax
The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
Strategies to maximize deductions
Additionally, Lo provided some strategies for individuals to help maximize deductions and combine routine planning with opportunities specific to the current market and inflation. These are good to keep in mind for every tax year, not just 2023:
- Charitable gifting and “bunching” – making several years’ worth of contributions in one year to maximize deductions in a high-tax year.
- Contributing to tax-advantaged accounts – 401(k), 403(b), HSA, and a 529 college savings plan as contributions to these accounts can reduce your current year’s taxable income.
- Tax loss harvesting – sell assets in your portfolio at a loss to offset taxable gains/income you have.
- Review year-end financial plans – determine if you are still on track to meet your long-term goals and implement steps to combat a higher-than-expected inflation rate.
- Consider coordinating estate planning with lifetime gifting strategies to ensure wishes for distribution are met.
Lo notes that rising interest rates will likely increase the “cost” of debt in 2023. “Behaviors that were common before, like taking on a mortgage to purchase a home or continuing to incur or carry a student loan, should be re-examined,” she says. “It is no longer ‘automatic’ because the ‘cost’ of money is not as cheap as it was.” As always, finding ways to reduce debt quickly can make a big impact on your long-term financial health.
No matter which tax bracket you fall into, it’s important to have a plan in place. If you feel like you could use a little extra help, consider seeking the help of a tax professional and/or certified financial planner. Your money is hard-earned and you deserve to make (and keep) the most of it.
MORE ON HERMONEY:
- This List Will Save You on Tax Prep This Year
- Tax Filing Tips for Women Who’ve Gone Through Some Stuff
- What To Do If You Can’t Pay Your Tax Bill
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