As I’m sure everyone is aware, we’ve seen an historic increase in inflation during 2022 and while no one is happy paying higher prices there are a few silver linings to explore.
To start, tax bracket changes could increase post-tax income in 2023 as thresholds will rise roughly 7%! As an example, here are 2023’s tax brackets compared to 2022’s for a couple who files a joint return:
|Married Filing Joint Returns (and surviving spouse)|
|Tax Rate||2023 Taxable Income||2022 Taxable Income|
|10%||$0 to $22,000||$0 to $20,550|
|12%||Over $22,000 to $89,450||Over $20,550 to $83,550|
|22%||Over $89,450 to $190,750||Over $83,550 to $178,150|
|24%||Over $190,750 to $364,200||Over $178,150 to $340,100|
|32%||Over $364,200 to $462,500||Over $340,100 to $431,900|
|35%||Over $462,500 to $693,750||Over $431,900 to $647,850|
|37%||Over $693,750||Over $647,850|
As you can see in the table, it requires more income to jump to higher tax brackets in 2023 than it did in 2022 which could create less tax liability!
Similarly, the contribution limits to 401(k)s, 403(b)s, and IRAs were all increased for 2023. The maximum contribution for individuals under 50 years old will jump to $22,500 vs the previous limit of $20,500. In addition, individuals older than 50 can contribute an additional “catch up” contribution of $7,500 vs the previous limit of $6,500 in 2022. This means that a working couple older than 50 could contribute a combined total of $60,000 to their workplace retirement plans in 2023!
IRA contribution limits will also be increased in 2023 to $6,500, which is a $500 increase and SIMPLE IRA contribution limits will rise to $15,500, up from $14,000 in 2022!
In addition to the changes in tax brackets and retirement account contributions, HSA contribution limits will rise in 2023 also! Here’s a chart to illustrate:
|HSA Contribution Limits for Families and Individuals|
|2023 Tax Year||2022 Tax Year|
This will give eligible individuals and families a larger opportunity to save and invest for future healthcare costs as well as deferring, or potentially eliminating, taxes on those contributions!
Combining the increased contribution limits to tax deferred retirement and healthcare accounts with the expanded thresholds for income tax brackets could be a potent way to reduce tax liabilities in 2023 and could at least soften the blow of higher prices elsewhere.
Please don’t hesitate to reach out to us with any questions about how these changes might impact you or your financial plan, we’re always here to help!
Your Team at iNNOVA Wealth Partners
PS – GO PHILLIES!
INNOVA is a SEC registered investment adviser. Information presented is for educational purposes only intended for a broad audience. INNOVA is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.