October 25, 2022
Tax changes just around the corner
As we have discussed on this blog numerous times, the tax laws in the U.S. are changing all the time. Just as you might think you have a handle on your tax obligations as an individual or married couple, something can change that brings you back to square one.
For instance, the IRS recently announced it would be changing numerous provisions and altering the tax brackets for 2023.
What is changing?
Starting next year, you could find yourself in a new marginal tax bracket. The IRS will be raising the threshold for how much you will owe on taxable income.
As this article from CNBC states, the income ranges will change by an increase of about 7 percent. In other words, parties will pay a lower rate in federal income taxes for more of their taxable income.
There will also be higher standard deductions:
- For individuals, the deduction will change from $12,950 to $13,850
- For married couples filing jointly, the deduction will change from $25,900 to $27,700
Finally, other provisions, including earned income tax credit, the alternative minimum tax, and the estate tax exemption, will all increase, as will the threshold for capital gains. Some parties also expect the limits for individual retirement accounts and 401(k) to increase.
What you can do now to prepare
Because these changes do not go into effect until 2023, you have time to make changes before filing the relevant returns in 2024. You may want to ask yourself – or better, discuss with a tax professional – questions including:
- Should I itemize or take the standard deduction?
- Should I sell a pricey asset now or wait?
- How much can I give to someone as a gift, and should I make that gift now or next year?
- Should I increase contributions to my health flexible spending account?
Working through questions like this in light of changes from the IRS can help people anticipate tax payments and take steps to minimize their obligations lawfully and effectively.
Taxes are undoubtedly complicated, and fluctuating limits do not necessarily make things easier. However, familiarizing yourself with these adjustments now can help you prepare accordingly.