Tax season is upon us! Here are a few things you need to know about taxes this year.
2022 was a difficult year for consumers with markets down and inflation up, and investors are hoping to put it to rest. Tax season seems to be the final nail in the coffin of the previous year, so now that it is upon us and we make the final push toward Tax Day, there is no better time to go over everything you need to know. Here are some of the key pieces of information we think can help you be successful this April.
1. Tax Day
While Tax Day is traditionally on Apr. 15 of any given year, it will fall on Apr. 18 of 2023. This is because Apr. 15 happens to fall on a Saturday. Additionally, Emancipation Day, which recognizes the emancipation of more than 3,000 slaves, falls on Apr. 16, which is a Sunday. It will then be observed by the U.S. government on Monday, Apr. 17, pushing Tax Day all the way back to Apr. 18. Be sure to file by this date to avoid incurring penalties.
2. Tax Brackets
The following tax rates will apply to 2022 taxable income, so when you file by Apr. 18, these are the marginal rates you can expect to pay in federal tax. It’s important to remember that these brackets are progressive, meaning that the rate at which you’re taxed will rise gradually as your income does. For example, if you make $100,000 per year as a single filer, you will still pay 10% in federal income tax on the first $10,275 of your taxable income.
| 2022 Marginal Tax Rate | Single Filers | Married and Filing Jointly | Head of Household | Married and filing Separately |
| 10% | $0 to $10,275 | $0 to $20,550 | $0 to $14,650 | $0 to $10,275 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $14,651 to $55,900 | $10,276 to $41,775 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $55,901 to $89,050 | $41,776 to $89,075 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,051 to $170,050 | $89,076 to $170,050 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 | $170,051 to $215,950 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $539,900 | $215,951 to $323,925 |
| 37% | Over $539,900 | Over $647,850 | Over $539,900 | Over $323,925 |
Among inflation and other factors, marginal rates for taxable income in 2023 will rise. It can be important to account for the rates in the upcoming year as you strategize, both for the short term and the long term. The 2023 marginal rates will be as follows:
| 2023 Marginal Tax Rate | Single Filers | Married and Filing Jointly | Head of Household | Married and filing Separately |
| 10% | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 | $0 to $11,000 |
| 12% | $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 | $11,001 to $44,725 |
| 22% | $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 | $44,726 to $95,375 |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 | $95,376 to $182,100 |
| 32% | $182,101 to $231,250 | $364, 201 to $462,500 | $182,101 to $231,250 | $182,101 to $231,250 |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 | $231,251 to $346,875 |
| 37% | Over $578,125 | Over $693,750 | Over $578,100 | Over $346,875 |
3. Standard Deductions
Standard deductions give filers the option to deduct a portion of their income before income tax is calculated. In some cases, it may make more sense and may save more money to itemize deductions, which is when a taxpayer notes each individual deduction one by one; however, in some cases, the standard deduction may be more helpful. For single filers and taxpayers who are married but filing separately, the standard deduction in 2021 was $12,550, but it has increased to $12,950 in 2022 and will further increase to $13,850 when filing for 2023. For those who are married and filing jointly, the standard deduction was $25,100 in 2021, then it increased to $25,900 and will increase again in 2023 to $27,700. Finally, for heads of household, the standard deduction was $18,800 in 2021 before increasing to $19,400, and it will increase to $20,800 in 2023. We always recommend speaking to your tax professional to determine whether you should itemize your deductions or take the standard deduction.
4. Deductions and Credits
It’s also important to know about the deductions and credits you may qualify for during the 2023 tax season. For example, if you itemize your charitable donations, you can deduct 60% of your adjusted gross income. Furthermore, you can deduct out-of-pocket medical expenses above 7.5% of your adjusted gross income; however, those deductions must also be itemized. For those who are self-employed, it may also be possible to deduct expenses for travel and your home if they’ve been used to conduct business. It’s always a good idea to discuss your options with a tax professional to see if you qualify.
Credits may also be able to boost your return. One of the major credits is the earned income tax credit, which can be helpful for those who qualify by offering funds for qualifying dependents. Depending on your income level and number of dependents, you may be able to get a credit of up to $6,935. Furthermore, a child tax credit of $2,000 per child is available to married couples filing jointly and making less than $400,000 and other filers making less than $200,000. Students and parents of students may also qualify for credits of up to $2,500, helping to pay for higher education. Again, it’s crucial to speak with your financial and tax professionals to determine which credits you may qualify for.
5. Tax-Advantaged Accounts
Tax-advantaged accounts provide investors and savers with tax advantages for their retirement. For example, a traditional IRA offers tax-deferred growth, allowing you to deduct contributions in the current year then be taxed on the withdrawals in retirement. A Roth IRA is built with post-tax contributions, giving investors the chance to experience tax-free growth and withdrawals. The deadline for contributions to an IRA for the 2022 tax year is Apr. 18, and the limit is $6,000, or $7,000 for those 50 or older. The contribution limits will go up to $6,500 and $7,500 respectively for the 2023 tax year.
If you have any questions about your taxes in 2023, please give Roth IUL a call! We can work in tandem with your CPA to find a strategy that works for you. You can reach us at (800) 202-7398.
Sources:
1. https://www.irs.gov/pub/irs-drop/rp-21-45.pdf
2. https://www.irs.gov/pub/irs-drop/rp-22-38.pdf
3. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021
4. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
5. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
6. https://www.irs.gov/retirement-plans/traditional-and-roth-iras