Tax and financial planning ideas for 2023

It’s always a good time to plan for your financial future, but a new year, which is only a few weeks away, may be a good reason to consider some planning strategies. In addition, the government has tightened some tax rules, and many of these changes benefit workers, savers, and most Americans. Here are some of the important changes our legislators and the tax code have made effective for 2023:

Higher Health Savings Account Limits: An increasingly popular tax benefit for workers and families is health savings accounts (HSAs). According to Jack Rushing, Senior Vice President of NFP, “These plans, especially when combined with a high-deductible health care plan, allow people to save for health care expenses on a pre-tax basis. In addition, the assets in these accounts can be invested for the short or long term, can grow tax-free as long as they are used for qualified medical expenses, and are transferable.”

For 2023, the maximum annual contribution amount is $3,850 (up from $3,650 in 2022). For families, the amount is $7,750 per year (up from $7,300 in 2022). The catch-up contribution amount for people age 55 and over is $1,000 per year. For a family in the 35% marginal tax bracket, a maximum contribution can result in a savings of $2,712.50 in federal income taxes plus any state income taxes and other benefits.

Rushing explains that for the self-employed, “there is a misconception that they are not eligible for an HSA. Anyone enrolled in a high-deductible health plan who qualifies for an HSA can set up an HSA and take advantage of the triple tax advantage.”

And as an added reminder, check to see if your employer is making any contributions to your HSA; if so, this can be a valuable benefit. According to Rushing, “One thing to keep in mind is that, unlike 401(k) limits, the total allowable contribution to your HSA plan includes any employer contributions.”

Increased IRA and 401(k) contribution limits: The amount a person can contribute to a 401(k) plan in 2023 has increased by $2,000 to $22,500. This change will also affect 403(b) plans, most 457 plans, and the government’s Thrift Savings Plan. The annual ‘catch-up’ contribution limit for people age 50 and over increases from $1,000 to $7,500.

The annual limit on IRA contributions increases from $500 to $6,500. The annual “catch-up” contribution limit for people age 50 and older remains at $1,000. This allows a person who turns 50 or older anytime in 2023, and who is eligible for an IRA, to contribute a total of $7,500 to their IRA. These amounts also apply to Roth IRAs, which may be an attractive option for many workers, especially younger workers, but a Roth, within a 401(k) plan, can also benefit people with higher incomes. . See my previous Forbes contribution on this topic: Roth Strategies for High-Income People and Business Owners

Increased standard deductions: The Tax Cuts and Jobs Act of 2017 increased taxpayers’ standard deduction, which is the amount of income that is exempt from income tax. In addition, it also indexed this amount to inflation. That means that as inflation rises, so does the amount exempt from income tax.

For single taxpayers and married filing separately, the standard deduction amount in 2023 will increase by $900 to $13,850. And for married couples, it goes up from $1,800 to $27,700. For those filing as heads of household, the standard deduction increases from $1,400 to $20,800 per year.

Of course, if you choose to itemize your deductions on your tax return, these changes won’t affect you, but most taxpayers don’t itemize, so claiming these higher standard deductions will be a good benefit for many taxpayers.

Upper marginal tax bracket thresholds: In addition to the higher standard deduction, another sneaky tax benefit is that more income can be taxed at a lower marginal tax rate. This is something that usually goes unnoticed, but if tax rates stay the same (and they’re going to come in in 2023), while the amount of income you can earn before reaching the next highest rate increases, then you may end up paying less income. . taxes. If this happens to you, these tax savings, as well as the tax savings from your higher standard deduction, may be an amount you set aside for long-term retirement planning.

Summary: While there are thousands of pages in the tax code, here are some of the ways that typical working Americans can adapt and benefit in 2023. By combining a few of these strategies, you will not only help your long-term financial plan, but which can also reduce your current tax bill as well.

This material is intended for informational/educational purposes only. Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

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