Will You Find Yourself in a New Tax Bracket in 2023? A few weeks ago, our friends at the IRS released their tax adjustments for 2023. (Feeling brave? You can check out the full report on their website.) Every year the IRS adjusts the taxable income brackets for inflation. As you can imagine, this year has seen a tremendous bump based on major spike inflation. And likely your income did not receive an equivalent bump, which could impact your current bracket.
Why Brackets Matter
The IRS doesn’t charge taxpayers a flat rate. Instead, the United States operates on a progressive system using seven brackets, 10%, 12%, 22%, 24%, 32%, 35%, and 37%. People with lower taxable incomes pay lower federal income tax rates. Additionally, those with higher taxable income pay a higher tax rate.
But whichever tax bracket you find yourself in, you don’t pay that percentage on your full taxable income. Instead, the IRS divides your income in chunks and each chunk gets taxed at the corresponding bracket rate. Nerd Wallet does a great job of breaking this down in comparable charts.
When the IRS raises their tax bracket limits, more of your income gets taxed at the lower tax rates. The government designed the annual realignment to avoid “tax bracket creep” where incomes get pushed into higher brackets with inflation.
What Else Impacts Your Tax Bill?
Tax bracket adjustments aren’t the only thing that help you save money on your taxes. Also, every year, you can save money by taking advantage of applicable tax credits and tax deductions.
Tax credits won’t affect your bracket, but they reduce your taxes owed dollar for dollar. Tax deductions, whether itemized or standard, reduce your overall taxable income. By reducing your taxable income, you could fall into a lower bracket and pay a lower tax rate.
Ultimately, you could see your paycheck increase in 2023 from the lower rates. At the same time, you may also find your tax bill at the end of year lower. As a reminder, though, you won’t feel those tax bill breaks until you file your 2023 taxes in April 2024.
Confused or overwhelmed? Relax! Our office provides tax return preparation services for businesses of all sizes and individuals. As we walk you through the process, we make sure you understand every step of the way. Because with our experience, we find every tax deduction we can to ensure you pay the lowest possible tax rate.
See how we can help minimize your tax responsibilities by calling our office at 724-216-5180 or contact us using our online form.