Inflation affects nearly every aspect of our finances. Big jumps in taxes can save you money, especially if you’re working and your pay raises haven’t kept up with inflation like most workers. , means that you can secure your retirement funds. On the other hand, a significant increase in the maximum income taxed by Social Security means that high earners pay more of her FICA taxes. If you’re a homeowner, you’ll likely not have adequate insurance, so you should check your coverage.
By now you are probably aware of the more obvious effects of inflation on public finances. For example, your money doesn’t go to the grocery store often. Credit cards and other variable-rate debt are getting more expensive as the Federal Reserve raises short-term interest rates to combat inflation. Interest rates on savings accounts are also rising, albeit slowly.
But other ways inflation can help or hurt have received less attention. Here are some of the key changes to watch out for in 2023.
Substantial tax changes benefit most taxpayers
The IRS has increased the standard deduction taken by more than 90% of taxpayers by $1,800 for married couples filing jointly and $900 for single filers. The standard deduction for 2023 is $27,700 for married couples and $13,850 for singles.
In addition, the IRS has revised federal tax rates upward by approximately 7%. Larger deductions, higher deductions and other changes will make most taxpayers pay less in his 2023, especially if incomes aren’t keeping up with inflation.
“We’re putting more money back into people’s pockets,” says Edward Carr, vice president of tax policy and advocacy at the American Institute of Certified Public Accountants.
The IRS has adjusted dozens of other tax provisions, increasing the maximum income tax deduction for eligible families with at least three children from $495 to $7,430 and increasing the maximum adoption deduction to $1,060. to $15,950.
The annual deductible for gifts (the amount you can give to an individual before filing a gift tax return) will increase from $1,000 to $17,000. You do not have to pay gift tax until the amount you give over the annual limit exceeds the lifetime estate and gift exemption limit. This is currently $12,920,000 and from 2022 he has increased by a whopping $860,000.
However, high-income earners may pay more FICA taxes in 2023. The maximum Social Security taxable salary will increase by $13,200 to $160,200.
Use our tax refund calculator or consult a tax professional to find out how these changes will affect you. Mid-year is a good time to run these numbers and make adjustments to withhold the appropriate amounts.
Retirement benefits may rise
The amount you can contribute to 401(k) plans, 403(b) plans, and other workplace retirement plans will increase from $2,000 to $22,500 if you’re under age 50. It means senior citizens can donate her $30,000 in 2023.
Income limits have also been increased to contribute to the Roth IRA. The 2023 phase-out range is $138,000 to $153,000 for singles and householders, while the 2022 range is $129,000 to $144,000. For married couples filing jointly, the phase-out range will be $218,000 to $228,000 and will be increased from $204,000 to $214,000. Additionally, income limits have been increased to claim saver credits and deduct traditional IRA contributions if you have access to a workplace plan.
If possible, increase your retirement benefits to take advantage of these changes. In addition to potential tax benefits, it can help make your future a more comfortable one.
Premiums are rising, but you may want more coverage
Consider buying cheaper car insurance. Auto insurance premiums have risen as the cost of car repairs and replacements has risen, but you may be able to find a better deal, especially if you’ve been with your current insurer for a while. Instead of rewarding loyalty, insurance companies may rely on your inertia to charge you more.
Homeowners insurance premiums are rising as well, but Amy Bach, executive director of United Policyholders, an insurance-focused consumer advocacy group, said the bigger concern is not. The cost of building materials has risen more than 35% since the pandemic began, according to the National Association of Home Builders. Unfortunately, the software used by insurance companies often underestimates reconstruction costs, which means many homeowners are underinsured, he said. She suggests talking to a local builder for a realistic current estimate you can afford to pay to replace your home. Consider doing
Liz Weston is a certified financial planner and columnist for NerdWallet, author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.
