November 2022

Thanks, Inflation! Cashing in on Inflation-Driven Tax Breaks

By Office Staff|2022-11-16T14:58:45-08:00November 16, 2022|Categories: Taxes|Tags: Annual Gift Tax Exclusion, Earned Income Tax Credit, Estate Tax, Income Threshold, Inflation, Standard Deduction|0 Comments

Recently, inflation has commandeered the news cycle. Everyone’s worried about it. And why wouldn’t they be? With inflation, everything costs more, and increased income usually lags far behind.

But inflation isn’t all bad. If you own a home, for example, inflation will eventually increase its value (in most cases). And if you have a mortgage on that home, you’ll be paying it off with dollars that aren’t worth nearly as much as the dollars you borrowed.

In addition, inflation can save you money on taxes. “How so?” you ask. In this post, we reveal several ways where inflation has recently resulted in lowering taxes (for some people).

Inflation-Driven Tax-Relief Baked into the Tax Code

Most people assume that inflation will increase their tax burden. Since income taxes are based on income, and if your income increases, you’ll pay more in taxes, right? You might even suffer a double whammy, paying more tax on higher income and getting boosted into a higher tax bracket.

While that’s true to some extent, the tax code has some protections built in that prevent rising prices from automatically triggering higher taxes. In fact, the Internal Revenue Service (IRS) recently announced that thanks to inflation, taxpayers can expect the following relief in 2023 (the following generally applies to tax returns filed in 2024):

Income thresholds will be increasing 7 percent for all tax brackets. For example, instead of paying the lowest tax rate of 10 percent tax on the first $10,275 you earn, you’ll pay 10 percent on the first $11,000 you earn. If you’re married filing jointly, instead of paying 10 percent on the first $20,250 you earn, you’ll pay 10 percent on the first $22,000 you earn. In other words — assuming you earn the same amount in 2023 as you did in 2022 — you’ll actually be paying less federal income tax.
The standard deduction is increasing 7 percent from $12,950 for individual filers in 2022 to $13,850 in 2023, and from $25,900 for married couples filing jointly in 2022 to $27,700 in 2023. This represents the largest adjustment to deductions since 1985, when the IRS began annual automatic inflationary adjustments. You’ll start to see the new figures reflected in your income tax withholding statements on paychecks beginning in January 2023, resulting in an increase in take-home pay.
The maximum Earned Income Tax Credit, one of the federal government’s main anti-poverty measures, will increase from $6,935 in 2022 to $7,430 in 2023.
The annual gift tax exclusion (the maximum amount one person can give to another without incurring a tax penalty) will increase from $16,000 in 2022 to $17,000 in 2023.
The estate tax threshold (often used by wealthy Americans to shield inherited assets from levies) will increase from $12.1 million in 2022 to $12.9 million in 2023.
The amount of income adoptive parents can shield from taxes will increase from $14,890 per child in 2022 to $15,950 per child in 2023.

You May Now Qualify for the Premium Tax Credit

Thanks to the soaring costs of “affordable” health insurance premiums, you may now qualify for the Premium Tax Credit where in recent years, you fell short of the cutoff.

Starting next year, if your Continue reading… Continue reading… Continue reading…

Year-End Tax-Savings Tips for Small-Business Owners and Entrepreneurs

By Office Staff|2022-11-09T16:58:58-08:00November 9, 2022|Categories: Business Taxes|Tags: Bonus Depreciation, Business Meals, Retirement Accounts|1 Comment

Here at SWC, we’re currently meeting with clients to project what they’re likely to owe in 2022 and discuss ways that they can reduce their tax liability for this year and beyond. In preparation for these meetings, it’s always a good idea for clients to start thinking about steps they can take to lower their upcoming tax bill.

Last week, we presented 6 Personal Tax Savings Steps for Individuals to Take Now — Before End of Year 2022. This week, we turn our attention to tax-savings tips for small-business owners and entrepreneurs.

With only about two months remaining in 2022, time is quickly running out to take advantage of a few attractive tax deductions/credits available only to business owners and entrepreneurs. If you’re planning to delay taking on certain expenses until 2023, you may want to reconsider your approach after reading this post. Some deductions/credits may not be available in 2023, or they may be significantly reduced.

Take advantage now of larger deductions for business meals.

There are four steps that — if you take now — could result in considerable tax savings.

Step 1: Maximize your retirement plan contributions.

If your business already has a retirement plan, consider maximizing tax-deductible contributions before the end of the year. If your business doesn’t have a retirement plan, now’s a good time to consider starting one. With a retirement plan in place, you can make tax-deductible contributions to the plan that grow tax-free until the funds are withdrawn. A retirement plan is a great way for you and your employees to build wealth while reducing your tax burden.

You can set up various types of retirement plans, including the following: Continue reading… Continue reading… Continue reading…

6 Personal Tax Savings Steps to Take Now — Before End of Year 2022

By Office Staff|2022-11-02T15:36:38-07:00November 2, 2022|Categories: Taxes|Tags: 2022 Taxes, Charitable Donations, Investments|0 Comments

For better or worse, 2022 is coming to an end. Halloween has come and gone, and we’re now seeing Christmas decorations on display at Walmart and other major retailers. Always a sign that tax season is fast approaching.

As the big box stores ramp up for the fall and winter holidays, our focus is on projecting what our clients will be required to pay in federal, state, and local income taxes — and, more important, helping them minimize their tax liability.

The good news is that making year-end tax projections for 2022 will probably be less complicated than in recent years. The Inflation Reduction Act of 2022, which was signed into law in August this year, was a slender version of the tax changes that were initially proposed, and with midterm elections just around the corner, members of Congress aren’t likely to stir the pot by introducing any new tax legislation.

While we think it’s unlikely that individual income tax rates are going to increase soon, if any tax legislation does occur in 2023, we believe the changes are likely to be forward-looking. That being said, when it comes to Congress, we can’t predict anything with certainty.

What we can do is provide individual filers with tax-savings guidance you can count on and start to put into action right now. As you prepare for your 2022 Year-End Tax Planning Meeting (between now and Dec. 16 for SWC clients), take the following steps to start thinking about ways to reduce your tax liability. In next week’s post, we’ll cover additional tax-savings tips for business owners and entrepreneurs.

Step 1: Look for ways to defer taxable income.

Deferring taxable income (which includes accelerating deductions) is usually a good idea, especially in an inflationary environment. It allows you to hold onto your money longer and pay your taxes with devalued dollars later. If we were expecting federal income tax rates to increase soon, we might not be so quick to recommend deferring taxable income, but we’re not Continue reading… Continue reading… Continue reading…