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Take Advantage of the New Tax Law!

    Take Advantage of the New Tax Law!

    Tax laws are subject to change on an annual basis; nonetheless, this presents a fantastic opportunity to evaluate and improve one’s own tax situation in preparation for the year 2023. Let’s have a look at the new things that have been added! Employees and retirees now have access to an increased number of planning opportunities than they did before legislation was passed. Opportunities for planning in 2023 can be broken down into three major categories: advice for currently employed people, advice for recently retired people, and ongoing strategies.

    Updates for Current Workers

    The following is a list of things that persons who are already employed may want to look over in preparation for the new year:

    New Tax Brackets and Standard Deduction: Both the tax brackets and the standard deduction have been updated to take into account the effects of inflation. Because of the huge numbers in 2022, there were larger than typical changes in 2023, and it is worthwhile to reassess tax withholding because of this.

    Higher IRA and Roth IRA Contribution Limits and Phase Outs: The amount that can be contributed to your employer’s retirement plan will rise from $20,500 (or $27,000 if you are age 50 or older) in 2023 to $22,500 (or $30,000 if you are age 50 or older).
    Health Savings Account Increases: Additionally, the contribution limits that can be made to IRA and Roth IRA accounts will rise, perhaps in addition to the contributions that can be made to employer plans. In addition, the income thresholds that determine when your eligibility to participate in these programs will begin to be reduced will be raised.
    Increases to Health Savings Accounts The maximum amount that an employee can contribute to a health savings account (HSA) will also see an increase in 2023. This applies to employees who already have an HSA.
    NEW Employer Matching 401k Contributions as Roth: It is possible that companies will begin enabling employees to accept matching contributions as Roth contributions beginning in the year 2023. Previously, employees could only make pre-tax contributions. This is completely new information, and it presents an enormous opportunity for planning.

    Information for Senior Citizens

    Individuals who are already in retirement will also need to account for the following adjustments in 2023:

    The age at which retirees are expected to begin taking their first required minimum distribution (RMD) will be increased from 72 to 73 years old beginning in 2023. This will be the most significant change affecting retirees. Individuals who will be turning 72 in the year 2023 now have an additional year of leeway to use for tax planning tactics such as Roth conversions or other methods to limit the amount of taxes they will pay over the course of their lifetimes.
    Benefits from Social Security and Medical Insurance under Medicare: In 2023, beneficiaries of Social Security will see an increase of 8.7% in their benefits. The standard monthly premium for Medicare beneficiaries will drop from $170 to $165 beginning in January. The income cutoffs for the IRMAA surcharge that Medicare levies will be raised for retirees with greater incomes.

    Ongoing Planning Opportunities

    When people start thinking ahead to 2023, there are various chances for continued preparation that are available to them:

    Qualified Charitable Contributions (QCD): For taxpayers who are at least 7012 years old, making charitable donations using qualified charitable distributions (QCDs) from an individual retirement account (IRA) may be one of the most tax-efficient ways to give to a nonprofit organization.
    Roth Conversions and “Backdoor” Roth IRA Contributions: Depending on your current income and existing retirement accounts, Roth conversions or “backdoor” Roth IRA contributions may allow for additional savings to be placed into accounts that will continue to grow tax-free in the foreseeable future.
    Tax Loss Harvesting: Because of the drop in both the stock market and the bond market in 2022, there may be more opportunities than normal to sell investments at a loss and offset taxable income obtained in other areas. This strategy is known as tax loss harvesting.

    The Bottom Line

    Recent changes to taxes have opened up a lot of new opportunities for tax planning, which should be looked at. It is in your best interest to investigate how making changes to your personal tax status in 2023 may help you financially. At Merriman, we make it our business to eat, sleep, and think about this stuff so that you don’t have to. We’d be happy to answer any questions you have and work with you to come up with and/or improve the best way to deal with your taxes in 2023. Make an appointment to see one of us today!

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