The Internal Revenue Service announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. In 2023, tax-bracket thresholds increased for each filing status, which means it will take a larger income increase to push you into the next bracket as illustrated in the chart below. The top income tax rate of 37% will be applied to taxpayers with taxable income above $578,125 for single filers and $693,750 for married couples filing jointly.
HOW DO TAXES WORK?
As mentioned previously, the tax system is a graduated scale, meaning you only pay a certain tax parentage on a on a certain band of your income. The highest tax bracket does not reflect how much you pay in federal income taxes. The first $22,000 you pay 10% then on the next $22,001-$89,450 you pay 15% and it goes up from there. The example below assumes a taxable income of $600,000.
It is important to understand in the difference between marginal tax rate and effective tax rate. The marginal tax rate is the rate of tax charged on a taxpayer’s last dollar of income earned. The effective tax rate, or the average tax rate, is the actual percentage of taxes you pay on all your taxable income.
RETIREMENT PLANS
As you may know, contributing to retirement plans lowers your tax burden. Most but not all retirement-plan-related limits increase for 2023. The limitations are listed below.
GIFT AND ESTATE TAXES
The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2023, the estate and gift tax basic exclusion increase from $12,060,000 to $12,920,000. Additionally, the annual gift tax exclusion increases from $16,000 for 2022 to $17,000 in 2023.
Securities, investment advisory and financial planning services are offered through qualified registered representatives of MML Investors Services, LLC, Member SIPC, 12 Cadillac Drive, Suite 440, Brentwood, TN 37027 (615) 309-6300. LongView Planning Partners is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. The information provided is not written or intended as specific tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. CRN202511-3299621
