February 7, 2023

Before You Do Your Taxes, Read This

It’s that time of year again! Whether you like to get your taxes done quickly because you expect a refund or you cringe at the thought of all the paperwork, it’s important to know what you’re getting into. There are several changes hidden in your taxes this year, from a standard deduction boost to new contribution limits for retirement accounts and more. Here’s what you need to know to make sure you’re ready to file for 2022—and a few tips for maximizing your tax savings for the coming year.  

What’s New?

If you’ve been feeling the pinch of inflation, there’s at least a little bit of good news on the tax front. The IRS has adjusted both the standard deduction and the income tax brackets themselves to account for this year’s sky-high inflation. Theoretically, this should result in a slightly lower tax bill for this year, all things being equal. 

Taxes are complex, and many factors will affect your personal tax rate. Here are some of the biggest changes to look out for as you prepare to file this year:

  • Higher Standard Deduction: The standard deduction for 2023 is going up by roughly 7%, depending on your filing status. That means less of your income will be taxed than last year. It also means that you’ll be less likely to itemize deductions, which can save you time on your filing.
  • Shifting Tax Brackets: While the marginal rates are staying the same, the IRS has adjusted the income level needed to hit each bracket. This means that more of your money will be taxed at a lower rate, slightly decreasing your tax burden.
  • Gift Tax Exclusions: For tax year 2022, you could give up to $16,000 as a gift with no tax liability. For 2023, this goes up to $17,000.
  • Student Loan Interest Deduction: This deduction is phased out for higher-income earners, but in 2023, you’ll be able to earn more while still getting this benefit. 
  • HSA Contribution Limits: You’ll be able to contribute more tax-free income to your Health Savings Account in 2023 as well, though the catch-up contribution limit remains the same.    
  • LTC Insurance Deductions: You’ll also be able to deduct more for long-term care insurance premiums in 2023. Exact amounts vary by age and filing status.
  • Increased Retirement Contribution Limits: All types of qualified retirement accounts (401k, 403b, IRAs, etc.) will have higher contribution limits next year, as well as higher catch-up contribution limits. That means you can save more! 

Looking for a cheat sheet to help you stay on top of the most important numbers? Download our 2023 Tax Guide today!

Tips to Lower Your Tax Bill This Year

If you haven’t yet filed your 2022 taxes, there are still a couple things you can do to lower your tax bill for the year. 

First, remember to max out your IRA contributions. You have until April 18 to make 2022 contributions, so contribute the maximum if you haven’t already done so. If you don’t have an IRA, you could open one and still contribute for 2022—just don’t wait too long, as it may take time to process your request.

Second, be sure to review your deductible business expenses. If you have a business or side gig, much of the money you pay out to do that work is deductible—just make sure you have receipts. In particular, don’t forget to consult with your CPA or tax preparer about the home office deduction if you work from home. There’s also an enhanced business meal deduction for 2022.

Smart Moves to Make for Next Year

Though there may not be a whole lot you can do about this year’s tax bill, you can definitely plan ahead to make the most of the changes for 2023! 

For starters, review your W-4 and your withholdings. If you owe taxes this year, consider increasing your additional withholding to eliminate that unhappy surprise. On the other hand, if you’re expecting a big refund, you may want to recalculate your withholdings so more of that money ends up in your pocket throughout the year—why not invest it for yourself, instead of lending it to the government interest-free? 

Next, increase your contributions to your qualified retirement accounts ASAP. Don’t forget that the limits are higher in 2023, so everyone can contribute more next year. If you’re over 50, you now qualify for catch-up contributions to give yourself an even bigger boost.

Finally, think ahead about your medical expenses. If you don’t already have one, you may consider opening an FSA or an HSA. These tax-advantaged medical savings accounts can help you cover health expenses and save on your tax bill at the same time. If you have some big health needs coming up, consider planning ahead to cover them all in the same year, which could help you bundle your extra spending to hit eligibility for the unreimbursed medical expenses deduction. 

The Bottom Line

Taxes are a fact of life, but it pays to make sure you’re being efficient with your money. Now that you know the numbers for 2023, you can adjust your retirement savings and tax planning to take advantage of the new rules. Not sure where to start? Talk to an expert! Tax planning can get tricky as you near retirement, and we’re standing by to help you develop a full financial plan that takes all of these moving parts into account. Get in touch to get started today!