Tax Planning for 2023

As tax season draws to a close, it is the perfect time for you to begin concentrating on tax planning. Tax planning’s purpose is to reduce your tax liability for the current year, as well as for years to come. This requires taking advantage of deductions, allowances, exemptions and exclusions.
IRS Tax Changes for 2023
Due to inflation, the IRS has made changes that may be helpful to you including:
• Providing some relief by increasing the tax bracket amounts
• Increasing the standard deduction to $13,850 for single filers and $27,700 for married couples filing jointly
• Increasing the limits for contributions to 401(k)s, IRAs and Roth IRAs to help retirement savings
Understand the Difference Between Tax Deductions and Tax Credits
Tax deductions lower the amount of income that can be taxed. Tax credits directly reduce the amount of tax owed by subtracting the amount of the credit from your tax bill. If the credit is greater than the amount owed, it is called a refundable credit. In such cases, the IRS pays a refund. A non-refundable credit can allow you to lower tax liability to zero. If there is an amount left over, the IRS pays a refund.
Deductions to Consider for 2023
If you are considering itemizing your deductions rather than taking the standard deduction, consider:
• Business Deductions
• Changes in charitable deductions
• Earned Income Tax Credit
• Medical Deductions
• Education Credits
• Child and Dependent Care Credit
• Child tax Credit

For questions concerning these categories, we welcome you to contact us.
How Income Brackets Work
You need to look at not just the bracket you expect to be in but also the lower brackets to determine your IRS tax obligation.
Let us say you are married and filing jointly and your expected taxable income for 2023 will be $160,000. Your tax bracket would be 22 percent. But that doesn’t mean you owe 22 percent income tax. Rather, your income from $0 to $22,000 would be taxed at 10 percent ($2,200), your income between $22,991 and $89,450 would be taxed at 12 percent ($7,975.08), and your income from $89451 to $160,000 would be taxed at 22 percent ($15,520.78). Therefore, you will be paying $25,695.83 in tax, which calculates to a rate of $16.1 percent.
For questions concerning tax planning for 2023 and the following years, contact your tax professional. We provide our clients with unlimited complimentary tax planning year round.
Professional Tax Services is a locally-owned provider serving over 3,500 local residents and businesses. For more information, call 661-259-1967 or visit www.scvprotaxservices.com.