Although it is only November and taxes aren’t due until April, the time to start thinking about tax planning in 2022 (and every year) is before the year is up. For this year’s taxes, there are some specific things you should know (including new updates from the IRS), things you should consider given this year’s market, and tips that are always important to remember, no matter the year or market. 

The standard deduction is increasing, as are 2023 tax income bracket levels.

In mid-October, the IRS announced that you will be able to shield more of your income from being taxed in 2023 because of inflation. First, the standard deduction is increasing $900 to $13,850 for individuals and $1,800 to $27,700 for married couples. There is still no limitation on itemized deductions. However, the tax brackets are also shifting due to inflation. The tax brackets are increasing by 7% and are now broken down as follows: 

  • 37% for incomes over $578,130 ($693,750 for married couples filing jointly);
  • 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
  • 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
  • 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
  • 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
  • 12% for incomes over $11,000 ($22,000 for married couples filing jointly).

There are also other changes that the IRS is enacting for next year. If you have any questions about your income or tax bracket, feel free to reach out to us or consult your tax advisor. 

The market volatility may impact your tax burden.

There is no getting around it: the market this year has been volatile. From the invasion of Ukraine to inflation, the markets have not reacted well. However, there can be a silver lining to market losses. The process of tax-loss harvesting may be able to help you defer the tax burden of capital gains. You can sell investments that are losing money and offset the gains from other investments. If your losses are larger than your gains, the IRS allows you to offset up to $3,000 of your taxable income. However, tax-loss harvesting cannot be used with retirement accounts like a 401(k) or IRA because these are tax-deferred accounts (read more about that below). There are also other considerations and rules that apply to tax-loss harvesting, and you should reach out to us or your tax advisor to learn more. 

No matter the market or year, you can make smart decisions when it comes to investments and taxes.

When you put money into a 401(k) or IRA, you defer paying income tax on that money. If your employer does a match for a 401(k), we recommend putting the amount that maximizes that match and more, if you are able. Most people can defer taxes on up to $20,500 that is put into a 401(k) and up to $6,000 on money put into an IRA. However, if you are over 50, you are eligible to put in more tax-deferred money through catch-up contributions. The amounts increase to $27,000 for an 401(k) and $7,000 for an IRA. 

If you have any questions about your retirement accounts or taxes, don’t hesitate to reach out to us. 

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Montgomery Financial Partners are not affiliated.

This communication is intended for people in the following states: AL, AZ, CA, DC, FL, MA, MD, MN, NC, NJ, NY, OH, OR, PA, SC, TX, VA, VT, WA, WV

This site contains third-party links. The information being provided is strictly as a courtesy. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites you are linking to. We make no representation as to the completeness or accuracy of information provided at these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information, and programs made available through this website.

Cambridge does not offer tax advice.