Taxes and Contribution Limits in 2023

Wondering where your 2023 taxes will shake out? Looking to make the most of your qualified contribution limits but not sure where you stand in 2023? Look no further!

Tax brackets for 2023

As an example, in 2023, a single filer with approximately $150,000 in income would pay:

• 10% on the first $11,000 of income = $1,100
• 12% on income from $11,001-$44,725 = $4,047
• 22% on income from $44,726-$93,375 = $11,143
• 24% on income from $95,376 to $150,000 = $13,110

For a total tax of $29,400 ($1,100 + $4,047 + $11,143 + $13,110).

[Note that this is only an example for illustrative purposes and does not factor in any deductions or credits.]

This differs from the 2022 tax rates. For instance, a couple filing jointly with income of $185,000 in 2023 would find themselves in the 22% tax bracket whereas last year, assuming they also had income of $185,000, they would have been in the 24% tax bracket.

Contributions in 2023

Looking to maximize your work-sponsored qualified plan contributions for 2023?

As an example, an employee, age 51, with $150,000 in compensation looking to maximize their 401(k) dollars could contribute up to $22,500 plus the additional catch-up of $7,500 for a total elective deferral of $30,000.

Looking to also maximize your IRAs?

Important Dates

April 18^th:

• 2022 Individual tax returns due
• Last day for 2022 IRA or Roth IRA contributions
• Individual tax return extension form due
• First Quarter 2023 estimated taxes due

June 15^th:

• Second Quarter 2023 estimated taxes due

September 15^th:

• Third Quarter 2023 estimated taxes due

October 16^th:

• Extended tax returns due

Preparing for Tax Season

Planning well in advance of the tax season may help better prepare you for the unexpected. Here are several reasons to begin early:

• Your home, job, or relationships changed
• You need to start saving money if you may owe taxes
• You want to ensure you qualify for tax deductions

You can make changes throughout the year to ensure that your tax preparations go smoothly.

In particular, you can make periodic assessments of your paycheck withholdings so that you will get a refund or can reduce or eliminate your tax burden.

You should keep track of and store your tax and other financial records to avoid delays or frantic preparations as the filing deadline approaches. Records may include W-2 forms, canceled checks,
certain receipts, and previous years’ returns.

Here is a list of other items to start gathering:

• Pay stubs
• Mortgage payment records
• Closing paperwork on home purchases
• Receipts for items or services you may want to claim as itemized deductions
• Records on charity giving and donations
• Mileage logs on cars used for business
• Business travel receipts
• Credit card and bank statements to verify deductions
• Medical bills
• 1099-G forms for state and local taxes
• 1099 forms for dividends or other income 

During the first few months of 2023, make sure you receive your W-2 and 1099 forms as well as other tax documents. Leave adequate time to collect documents and prepare to file your taxes prior to the April 18, 2023, deadline.

Tightening the Nuts and Bolts

Here are some ways to prepare this year for next year’s tax season: 

Look at last year: Take one more look at last year’s return. In the months ahead, you may still have the opportunity to contribute more to your retirement plan, which may lower your taxable income.

Donate to charity: How about “bunching” your charitable donations? Bunching provides you with the ability to optimize your deduction allowances by making two or more years’ worth of charity donations in one year.

Let us say you are married, you expect to itemize your deductions, and you anticipate making $15,000 in annual donations. By donating $30,000 in one year and skipping the next, you may be able to qualify for a
higher deduction.[i]

Review Capital Losses: If you are investing in the financial markets, you may want to consider deducting capital losses; you have the opportunity to claim deductions if you experienced losses.

You can claim losses only if they exceed capital gains. You are allowed to claim the difference of up to $3,000 per year if you are married filing jointly or $1,500 if you are filing separate returns. Net losses that exceed $3,000 can be carried over into future years.[ii]

Deductions for capital losses can only be applied to investment property sales but not to the sale of investment property that was held for personal use. 

Get organized: Find a place to store your tax documents until it is time to prepare to file. A good record-keeping system may alleviate concerns later as the deadline gets closer. 

If you have your documents or prior-year returns stored on your computer, make sure you back them up on a thumb drive or other device or system in case your computer is hacked or stolen. 

Consider other taxes: Keep an eye on local and state government requirements that may affect your specific tax situation.

How Long?

The IRS provides recommended timelines for retaining financial documents:^I

1. You should keep your tax records for three years if #4 and #5 below do not apply to you. 
2. You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return. 
3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction. 
4. You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return. 
5. Keep records indefinitely if you do not file a return.
6. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.

[i] IRS.gov, 2022

[ii] IRS.gov, 2023