Prepare for the IRS’s new Income Tax Brackets
Perhaps you’ve heard that the Internal Revenue Service is planning to change the income tax brackets for 2018.
The rationale for the modifications is the consolidation of taxes.
The Tax and Revenue Service is working to streamline the tax code.
To what extent does this affect you?
A more straightforward calculation of your tax liability should now be possible thanks to the revised tax brackets.
It will allow you to pay less in taxes and should speed up the processing of your tax return by the Internal Revenue Service.
For next year’s planning purposes, let’s go through the specifics of the new tax brackets.
In the United States, how do tax brackets work?
A graduated or progressive tax system is in existence in the United States.
You could say it is the antithesis of a uniform tax rate or structure.
Your annual tax rate is scaled to your income.
The current range of rates is 10%-22%-24%-26%-31%-35%-37%.
Marginal or limiting values are used here, and they are called brackets.
How Do Tax Rates in 2023 Differ From Those in 2022?
The threshold at which your income triggers a new tax rate will increase in the year 2023.
Even if your income increases next year, you’ll probably end up paying less in taxes thanks to this.
As before, the federal government wants to make this adjustment so that the tax code is easier to understand, but they also want to help families and individuals who are struggling due to inflation.
Many goods and services are increasing in price, but this move should help to mitigate that trend.
Let’s take a look at a possible scenario in which your tax rate in 2022 will be different from what it is in 2021.
Let’s pretend you’re a single person in 2022 with a salary of $41,776.
Earnings above that amount are taxed at a rate of 22%.
Up to $44,726 in 2023, you’ll pay only 22% of your income in taxes.
You won’t have to pay any more in taxes in 2023 on an extra $2,950 in income compared to 2022.
Regardless of your tax bracket, you can keep the savings.
As one’s income increases, so do the potential savings under the new tax law.
Is There Any Difference If You Do a Joint Return?
You can still take advantage of next year’s tax bracket adjustments if you file your taxes jointly.
For instance, if you and your spouse are filing jointly in 2022, and you use the 22% tax rate as a threshold again, you can keep your income below that bracket up to $83,551.
A joint income of $89,451 or less in 2019 will keep you in the 22% tax bracket.
The sum of the two amounts is $5,900.
By making these adjustments, you will be able to keep more of your hard-earned cash.
In the end, the major message is that next year, when the IRS revises the tax code and modifies each bracket, you will be able to keep more of your hard-earned cash.
The amount of money you owe the IRS will decrease regardless of where you now are in the adjusted tax rate.
On the IRS website, you may access extensive tables displaying the current tax brackets as well as the changes that will take effect in 2023.
How much money you make next year is generally predictable.
Once you have that figure, you can use it in the chart to get a rough idea of how much more of your money you may expect to keep.
It’s encouraging to learn that the IRS is working to lessen the burden on normal Americans in the face of inflation, a bear market, and other economic woes.
You might save hundreds, if not thousands, of dollars in taxes next year.
