The Personal Finance Podcast - The New Tax Rules for 2023 That May Increase your Paycheck!

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Starting point is 00:01:05 2023 that may help you keep more money. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be talking about some of the new IRS rules that may help you keep more money in 2020. If you guys have any questions, make sure you hit us up on Instagram or TikTok at Master Money Co and follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast tune.

Starting point is 00:01:55 If you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. I cannot thank you guys enough who have left those five-star ratings and reviews. It helps us spread this message that building wealth is for everybody. Everybody can build wealth. We truly believe that here on this podcast. And so we are so incredibly excited to be able to share that message with you guys. Now today, we're going to be talking about some of the new IRS rules that may help you keep more money in your pocket.

Starting point is 00:02:23 Now, before we dive into this, I want to say, I am not a CPA. I am not a tax professional. So if you want to see how these are going to pertain to your life and your everyday life, I would look to talk to either a tax strategist or a tax professional or a CPA. So usually you can get all those in one person, but this is an amazing way for you to be able to actually maximize your dollars. And when it comes to CPAs, mine is absolutely amazing. but I really truly think that everybody should have a CPA in their corner so that they can look at their financial situation. The amount of money that you pay towards a CPA is well worth the amount of savings that you're going to get.

Starting point is 00:02:56 But what you want to do, and we'll do a full episode on how to find a CPA, maybe I'll bring mine on as well. We can talk through some things. But what you want to do is you want to find a CPA who can specialize in tax strategy, specifically so that they can save you more money. We'll talk about some of the reasons why here today as well. But the reason why you want to have this is because you can save hundreds of thousands. of dollars over the course of your career, if not millions, depending on how much money you're making, by building out some tax shelters for your specific tax situation. There are so many little loopholes that the rich do that you can utilize as well.

Starting point is 00:03:27 Everybody has access to the tax code. It's just you have to know how to do it. And your CPA is the person who's going to be able to help you get through that and help you actually do this. So that is why it is incredibly important to have a good CPA in your corner. Don't just pick anybody out there. You want to look for recommendations. You want to look at ratings and reviews on Google.

Starting point is 00:03:45 see who really is good and specific for your situation. For example, if you're a real estate investor, maybe you want to find one that is specific to real estate investors. If you are someone who owns a business, maybe you want to find one who specifically works with those types of businesses. But you want to get a little bit specific so that they understand at least your specific tax strategy when you start to do this. So wanted to talk about that at the top here,

Starting point is 00:04:10 before we dive into some of these new rules so that you understand, hey, I should probably talk to somebody about this with my specific situation, especially as we enter 2023. You want to know these rules so that you can keep more money in your pocket and understand why your paycheck is doing what it's doing if you work or what adjustments you can make with your business and all those different things. So on the last episode, we talked about the new retirement account differences. So the IRS made some changes to retirement accounts. If you haven't heard that episode, make sure you check that episode out as well because these IRS changes are really important for you to know and understand going in. into each year. You don't have to know a lot of things about personal finance to do really well with your money. But these are the types of things you want to know, because if you know these

Starting point is 00:04:50 things, they can save you thousands and thousands and thousands of dollars. So tax code, I'm going to try to make this as simple as possible so that if you've never even thought about taxes before, then you just have to listen to this episode so you have the information that you need so that you can talk to your tax team on that. So if that's something you're interested in, you want to save thousands of dollars, then let's get into it. All right. So the first one is there's been some adjustments to tax brackets. And this may help you if you are someone who is earning a lot of money and it may adjust you into a different tax bracket. So this is very interesting. And for a lot of people, it's going to impact almost everyone to see where these adjustments are. So if you don't know how taxes work and if you

Starting point is 00:05:27 don't know how tax brackets work, maybe you just utilize turbo tax for your entire life. Specifically in the U.S. is what I'm talking about here. We are actually in a progressive or graduated tax system is what it's called. And what this means is you're not taxed at a flat rate. Like a lot of people think they're in the 24% tax bracket, so they're only taxed at 24%. That's not exactly how it works. A portion of your income is taxed at different percentages. So for example, there's a 10%, there's 12%, there's 22%, there's 24%, there's 32%, and it's a gradual scale where your money is taxed. So let me give you an example here. So suppose you're single and you end up with like $100,000 in taxable income for 2022. Well, $100,000 is in the 24% bracket for singles. But what a lot of people think

Starting point is 00:06:11 is that their 2222 tax bill would be $24,000 because it's 24% of $100,000. We're doing easy math here in the personal finance podcast, so we don't have to come off the top of the dome with this stuff. So a lot of people are going to think that it's $24,000, but that's actually not the case. That's because we use marginal tax rates. So only a portion of your income is actually taxed at that 24% tax rate. The rest is taxed at 10%, 12% and 22% rates.

Starting point is 00:06:40 So this is just a gradual. system, it's not something where you're taxed at one rate. Now, if you're trying to do just really quick, simple math, sure, you can utilize that, but that's not the correct number. It's not what the exact number is going to be. So this is something you definitely want to understand. So how did these tax brackets change? Now, here's a more specific example. So say you made that $100,000 in taxable income. So in 2022, based on the 2022 rules, the first $10,275 of your income is taxed at the 10% rate. Or you're going to pay $1,028 in tax. the next $31,500 of your income is going to be taxed at the 12% rate because it falls into these

Starting point is 00:07:18 ranges and we'll get into these ranges in a second so you'll be taxed an additional $3,780 for the $31,500 that you made there. After that, $47,300 of your income is going to be taxed at the 22% rate and only $10,925 of your income is going to be taxed at that 24% rate. This is how it works and if this is not sinking in fully, you can watch this on YouTube. We'll have some visuals on there so that you can see this. And we can kind of go through this

Starting point is 00:07:47 and see exactly how this works. But for 2022, we're going to look at the difference between some of these marginal tax rates. So if you're in the 10% tax bracket and you're single, the amount for 2022 was $10,275. It's gone up to $11,000 in 20203.

Starting point is 00:08:05 For the 12% tax bracket, it comes into a range of $10,276, to $41,775. And at the 12% range for 2020, it's gone up. So it's gone up to $11,725. And then if you're single, at the 22% tax bracket is $41,776 to $89,075 for 2022. And at 2023, we are looking at $44,726,000,

Starting point is 00:08:40 and $95,375 for the 22% tax bracket. And then the 24% tax bracket is $89,076 to $170,050. So a lot of people will fall in the 24% tax bracket or below because we know the majority of Americans make less than $170,000. And for $2,023, it's gone up to $182,000 and below where you fall into that 24% tax. bracket range. Now if you want to get to the 32% tax bracket, you got to make more than that 182,100, so it's 182,101 to $231,250. Whereas in 2023, the jump is a big difference here.

Starting point is 00:09:26 It went all the way up to $215,000. So for $2,023, it jumped over $15,000. Where this is where a lot of people, if you're a high earner, you may be sliding into a different tax bracket. It's going to save you a lot of money because the difference between the 24% tax bracket and the 32% tax bracket is a major difference. It's 8% differential there. So you definitely want to see that sliding scale where your income could fall into that 32% range and maybe you even want to count the cost to see where you want to land. And then lastly is the 35% tax bracket and it goes all the way up to 37 for the really high earners. 35% tax bracket for 2020 is $21515,951 all the way up to $539,900 for someone who is single. And for

Starting point is 00:10:10 for 2023, it's $231,251 all the way up to $578,125. And then to hit that 37% tax bracket, it's over $539,900 for 2022, and over $578,125 for $2,025 for $2,023. So that's just for folks who are filing single. If you're filing married filing jointly, I'm not going to go through all of those, but you can look at them. We'll leave a link down below to the IRS site where you can see these in the show notes because it's definitely worth looking at to see where your income is going to slide into, especially if you're not making a ton more money, maybe you just get like a 3% raise or you're not getting an increase in money at all for next year. You may fall into a different tax bracket and be able to save a lot of money there. So a lot of people, this is going to be impacting.

Starting point is 00:10:57 So look to see how this impacts you because saving two to eight percent in taxes every single year specifically for these tax brackets is going to be really, really beneficial. Now, one thing I want to say about a lot of these IRS changes is these are adjusting for inflation. The reason why these are adjusting is because inflation has been so high. So it's not always the best thing in the world for these to be adjusting. But at the same time, you want to make sure that you can take advantage of these and know what's happening with your income. You don't have to know all of these numbers. You don't have to understand every number for every bracket. But what you want to know is for your specific situation, what bracket are you in and what could you fall into in the

Starting point is 00:11:31 future where maybe you want to see where your income is and kind of control some of those things and have some extra write-offs so that you can reduce that taxable income so you don't fall into that new tax bracket, which is what we're going to be talking about up next when we talk about the standard deduction. So we're going to get into that next. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster.

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Starting point is 00:14:52 Find your advisor at IGPrivatewealth.com. All right, so the standard deduction is something that is really important to understand, especially when it comes to personal finances because the standard deduction is something that you want to understand as you're working but in addition you also want to understand the standard deduction in retirement. It's very important to know this.

Starting point is 00:15:10 So even if you don't have any other deductions or tax credits, the IRS still lets you deduct a specific amount with no questions asked called the standard deduction. Now the interesting thing about the standard deduction is 90% of Americans actually take the standard deduction and do not take the itemized deduction. I personally take itemized deductions when I do my taxes.

Starting point is 00:15:30 But 90% of Americans just take the standard deduction. Why? For a lot of people, it's much easier. And a lot of them, they don't qualify for the standard deduction. So we'll talk about right after we go through the new changes, we'll talk about when you should take the standard deduction and when you should not take this standard deduction. But what do I mean by itemized deductions?

Starting point is 00:15:47 What does that actually mean? What are the two options here? So say, for example, you've heard us talk about some of the best ways to stave on your taxes. So say, for example, you take a deduction because you get the charity. So if you give the charity, that is tax-free money, you can take a deduction on that money and reduce your taxable income. Okay. Another way that you can do this for daycare costs.

Starting point is 00:16:06 If you have kids in daycare, and this is a massive one for a lot of parents. If you have kids in daycare, you may be better off taking that itemized deduction, then you would be taking that standard deduction. So thinking through this is really important. But another example would be daycare costs. You can write off daycare costs where it lowers your taxable deduction. There are a lot of other things that we have talked about in the past. And we'll link up to that episode where we talk about a bunch of different

Starting point is 00:16:28 deductions and we're going to have some tax experts coming on the podcast as well talking about some of the best ones for working individuals and their deductions in addition to real estate investors and all the other segments that we want to go through so really excited about that because you could maybe save a lot more money on your taxes and having the right tax strategy saves you like we said thousands and thousands and thousands of dollars so knowing this stuff is really really important or just having a CPA in your corner who knows this stuff is even more important because they can take advantage of this for you so those are your two options when you do your taxes. You can take a standard deduction, which is a flat amount that the government gives you

Starting point is 00:17:01 based on how you file your taxes. And you could take an itemized deduction, meaning you can reduce your taxable income with all these different items that we have discussed. So the standard deduction has changed for this year and it's actually gone up, which is good for most individuals because 90% of you take the standard deduction. So for the 2222 tax year, if you're filing single, the standard deduction is $12,950. For 2023, it's gone up to $13,850. So you can reduce your taxable income by $13,850 if you're filing single. If you're filing married, filing jointly, the 2022 tax year was $25,900.

Starting point is 00:17:42 And then when you go to the 2023 tax year, it's going to be $27,700. Then there's married filing separately. So in 2022, it was $12,950. and 2023, it's going to be the same as the single, 13,850. And then head of household is a little bit different. So head of household is 19,400 for 2022. And for 2023, it's $20,800. So the good thing about this is your standard deduction for 90% of Americans has gone up

Starting point is 00:18:09 because it's going to keep up with inflation. That is why they are doing this. So the bottom line is when do you take the standard deduction? When does it make sense to take the standard deduction? So it makes sense to take the standard deduction. if your itemized deductions are less than the standard deduction. So what you can do is look at all your itemized deductions. Did I give to charity?

Starting point is 00:18:28 Do I have these write-offs with daycare? All these other things that I could be doing. Do I have a home office that I'm writing off? All these additional itemized write-offs that you can have. Is this number higher than the standard deduction? For me, it is. So I itemize my deduction because we have businesses and things that we utilize where there's a lot of things that we can do that we can write off.

Starting point is 00:18:48 Whereas if you don't have a business and you're just, a working individual, this is why 90% of people take that standard deduction because they don't have as many itemized things that they can reduce. Now, if you have children in daycare, really look at this because daycare costs are very, very expensive. And if you give the charity specifically, if you tithe or something like that and give 10% of your income, then you want to definitely be looking into this. So that's the quick way to check this is kind of go through this. But mortgage interest is another one. There's a bunch of different itemized things that you can talk through. So run the numbers both ways when you do your taxes so that you can see which one is greater.

Starting point is 00:19:23 And that's how you figure out should I take the standard deduction or should I itemize my deductions. Which one is best for me? If you guys have any questions on that, make sure you hit me up or talk to your tax professional because like I said, I'm not a tax professional. But I'm just kind of telling you how to think through this so you understand what's going on with your taxes. Now the next one we're going to get into is capital gains tax. All right. So the capital gains tax have been adjusted as well. So the cool thing about these capital gains tax is, if you don't understand what capital gains tax is,

Starting point is 00:19:51 it is when you invest your dollars. So if you invest any money whatsoever, this is going to apply to you. So if you invest in index funds and ATFs like we love to talk about here, this is going to apply to you. And what happens is when you invest your money, you actually get taxed on the gains that your money makes. And it depends on how long you have actually held that stock or that individual. mutual fund or that index fund that will depend on what tax rate you are taxed on so there's short-term capital gains tax which is anything that you hold for less than a year you're going to get tax way higher than on long-term capital gains tax which is why we tell you to hold buying hold for a long period of time because on long-term capital gains tax your tax

Starting point is 00:20:35 your tax rates are much lower short-term capital gains tax you're paying well over 30% long-term capital gains tax the most you're going to be paying is 20% depending on your income that's the cool thing and you can pay all the way up to zero 0% of your income on capital gains tax rates. So let me show you how they've changed for 2023, because this is really important to understand as well. So if you're filing single, that's how we're going to run the numbers on this one.

Starting point is 00:20:58 And then you can look at the new ones as well. We'll link them up down the IRS website. So you can check out the other ones as well. But if you are single and you want to be in that 0% tax range, what's going to happen is when you're a single, $0 all the way up to $41,675 of income per year in 2020. is at the 0% range. But in 2023, that top number goes to $44,625.

Starting point is 00:21:25 So it goes up about $3,000, almost for 2023. This is where most people fall. So for 2022, if you want to be in the 15% capital gains tax range, it'd be $41,676 to $459,750. So a majority of Americans are going to fall in the 15% range or below for 2022 and for 2,023 as well, it's gone up a lot. So for 2020, it is $44,626 to $492,300. So it went up a lot for $2,023 for filing single. And then lastly is 20%. So to pay 20% capital gains tax, you have to make $459,751 in 2022. And for 22,000, you have to make $492,300. So that went up a lot more as well. So these are some of the capital gains tax rate for long-term capital gains. If you are interested in that,

Starting point is 00:22:23 make sure you check the link in the IRS website as well because it will have married filing separate, married filing jointly, all those different things so that you can see how you file your taxes and where your capital gains tax will fall into play. Now what else is changing for 2023? Those are the big three that I like to talk about and I like to look at because it impacts the most people. But there are some additional things that will impact people, including the earned income tax credit. So the earned income's tax credit is a refundable tax credit for low and moderate income workers. And this is also going to see a bump in 2023, which is pretty cool. So the total credit amount depends on the income and the number of children that you have. So people without kids can actually still qualify.

Starting point is 00:23:00 Most people don't know that. But if you don't have kids, you can actually still qualify for the earned income tax bracket. So for 2022, the earned income credit ranges from $560 to a maximum of $69.35. And in 2023, the maximum is actually going to go up to $7.202, the maximum is actually going to go up to $7,430. So that has gone up for folks as well. And it depends on how many children we have, how much you can actually claim, and your adjusted gross income as well. So both of those things matter, but they have to be below those adjusted gross income levels to actually be able to qualify for this. Now, another one that you can look at is the annual exclusion for gifts. So gifts are something where you can give money away tax free up to a certain amount. And

Starting point is 00:23:43 a lot of wealthy people do this and they'll start to do it over time. maybe in a trust to their kids or their grandkids when they don't want to pay taxes on this money because when you hand money down to people in one big, giant, large lump sum, you got to pay a lot of taxes on that money. But you can actually gift a certain amount every single tax year that's going to allow you to not have to pay taxes. So sometimes really wealthy people will actually gift money down to their children or their grandchildren. And I anticipate all of you to be really wealthy people as you get closer to retirement age. That's why you listen to this podcast is that's our goal is we want you to be wealthy. So we want you to know this stuff now so that when you gift down money or even

Starting point is 00:24:18 hand it down to maybe people in your family or if you're giving away to charity, that's a whole different story. But if you're going to hand money down to your family members, then this is something you definitely want to know as well. So it is actually up $1,000 from last year. So for 2023, it's going to increase to $17,000. And in 2022, it was at $16,000. So a lot of common reasons that people use this is parents helping their kids for like a down payment for a house, for example, or if parents are gifting money to newlyweds. And if you have the privilege of having parents that are going to do that for you, that's absolutely amazing. If they're gifting you that money, then you'll be able to actually have that money tax free. So you don't want to be

Starting point is 00:24:54 paying taxes on this money. Or grandparents giving a portion of their wealth down to their grandchildren. Or this happens a lot in a trust where you'll see really wealthy people handing down inheritance tax free. So over the course of like 10 years, for example, each person in the family, say there's a husband and a wife handing money down. Each person can give down over the course 10 years at this $17,000 range, $170,000 tax free over the course of those 10 years. So some people started early so that they can have this tax reduction. There's also the lifetime estate tax exclusion that's having an adjustment as well. So in 2023, if you are extremely wealthy, meaning your net worth is over $10 million,

Starting point is 00:25:30 and this may apply to you. So estates valued over $12.92 million will not be subject to estate tax up to $12.06 million from 2022. to. So that has been adjusted. The flexible spending account increases. So this may impact some of you if you use an FSA, which we like the HSA here a lot more for a number of reasons. But if you don't know what a flexible spending account is, it's where you can contribute money to an account tax-free that you're going to actually use for health care costs, but that money cannot roll over to the next year. So you actually have to spend it in that account. So if you know you have a lot of medical costs that are going to be coming up, an FSA is great. But if you are not really having a ton of

Starting point is 00:26:08 medical costs. If you're younger, maybe you're healthy, you really just go to the doctor a couple times a year. This may not be the best option for you because you have to use that money towards qualified medical expenses every year and you have to use all of it. So this is a way to actually be able to reduce your taxes, but the number has gone up. So in 2023, people who contribute to a flexible spinning account or an FSA can contribute up to $3,050 and they will be able to carry over $610 in the next tax year. So like I said, you got to spend. the majority of it, but you can carry over $610. And in addition, the last one is the adoption credit is being adjusted as well.

Starting point is 00:26:46 So if you have adopted children and there's a tax benefit for folks who do that, and when you do that, it is up from 2003. So it is actually $15,950 in 2023. And last year it was $14,890 for $2,22. So those are a lot of the IRS adjustments that will impact the amount of money that you make. The tax brackets are a big one because you could see a lot more money in your paycheck. If you do see money in your paycheck, even though your income has an increased for the next year, that is why. Because some of these brackets have increased.

Starting point is 00:27:15 In addition, you should see a capital gains tax differential if you're on the line on some of those. So maybe you can see a difference in that. But all of this is based on your income. So look at your income. Look how you file your taxes. Those are the two things you really want to know. And then when you look at some of these, see how it applies to you and make sure you go talk to a tax strategist. Go talk to a CPA so that they can help you through this.

Starting point is 00:27:37 Because like I said, this is not advice. this is just me telling you how I think through this stuff because it is something that is very, very important to know. It is very important to know. Ask your accountant questions. Ask them what you're curious about. Don't feel stupid about this stuff. That is what they are there to do is advise you. So going through this stuff is really important and it's very important to know and they can even help you pick out which are the best retirement accounts for your tax bracket and they can go through that stuff. Finding a good tax strategist is extremely valuable. I mean it's one of the most valuable things that you can find. So I cannot say that enough on how much money that could save

Starting point is 00:28:11 you. So that is some of the new rules for 2023. Let me know how that's going to impact you. And if your money is going to increase over time, let me know as well. Thank you guys so much for listening this episode. I hope you learned a ton. And we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Playojo. The online casino with all the latest slot. and live casino games. What you win is yours to keep with no wagering requirements,

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The Personal Finance Podcast - The New Tax Rules for 2023 That May Increase your Paycheck!

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